Obama’s Student Loan Forgiveness Program
The country wants to know–how will Obama’s student loan program affect student loan payments?
We have answers. Obama’s recently announced changes to student loans in 2011 and 2012 are sure to make more than a few student loan borrowers very happy.
Student loan forgiveness?
Earlier in the week many thought the Obama student loan plan might feature a student loan forgiveness program, but it doesn’t appear to be that straightforward. Starting in 2012, here’s how student loan debts will be changed to reflect the new policy:
Student loan payments will be capped at 10 percent of a worker’s income. The calculation for income is the amount of discretionary income a person earns. Discretionary income is defined as the amount of money you make minus applicable income taxes paid.
You qualify for this new student loan plan only if you took out a loan after 2008, or if you will take a student loan in 2012. It does not affect loans made before 2008, and those after the 2012 school year.
Debts will be forgiven after a period of 20 years, meaning that if after 20 years of consistent payments at 10% of your income level the debts are not repaid in full, then the lender will simply wipe away the balance and you are free from any student loan debt at that time. The current law allows for erasing student loan debt after 25 years.
Finally, those who enroll in the student loan debt plan announced this week will receive a .5% discount on the interest rate of their loans when applications open up in January. This interest savings is particularly beneficial, since the power of compounding is minimized by a lower interest rate.
Student Loan Reform
This is probably just one of many of the first steps toward student loan reform. Recently, political activists, including those active in Wall Street protests, have become particularly adamant about student loan reform, and forgiveness. Whether or not borrowers will save under the current program remains to be seen, but as many as 36 million Americans have student loan debt, and only 500,000 people were participating in the previous student loan debt reformation plan as of earlier this year.
