The Obama Student Loan Forgiveness Program

In 2013, Fair Isaac Corp. (FICO) released an analysis of 10 million credit files. They discovered that from 2005 to 2012 the average student debt load soared up from $17,233 to $27,253. According to Dr. Dr. Andrew Jennings, FICO’s chief analytics officer and head of FICO Labs, this is an unsustainable situation and it’s dragging the economy. She said, “As more people default on their student loans, their credit ratings will drop, making it harder for them to access new credit and help grow the economy. Even people who stay current on their student loans are dealing with very large debts, which reduces the money they have available to spend elsewhere.”

The report isn’t encouraging for someone wanting to earn a degree but has limited financial capacity. The question is: how can anyone pursue his college dream without compromising his financial stability as an adult?

Even with a college diploma, the future is still uncertain. If the current economy persists, finding a job would be a real struggle.  One doesn’t know whether he’ll be able to find a job, how long it would take to find one, or how much he’ll be earning.

While making monthly payments might be challenging, know that the government has made options available to help ease your financial burden. One such option is the Obama Student Loan Forgiveness program, designed for borrowers of any federal student loans.

This program offers the following student loan forgiveness:

Income-Based Repayment (IBR) Plan

Under the IBR plan, graduates pay no more than 10% of their discretionary income, or the remaining portion of their income after they have covered basic living expenses, such as housing and food. After 20 years, they will receive a student loan forgiveness which means the remaining balance of their eligible loans will be forgiven. Public service workers can avail of the student loan forgiveness after10 years.

Note, however, that only students who enrolled in college in 2014 or later can participate in the IBR Plan. Even with this regulation, this plan is expected to benefit more than 1 million borrowers.

Pay As You Earn (PAYE) Repayment Plan.

The PAYE Repayment Plan is for students who enrolled before 2014, disqualifying them to participate in the Income-Based Repayment plan. At present, PAYE repayment plan only serves college graduates who were new borrowers as of October 1, 2007. But a new executive order will soon be implemented expanding the PAYE plan to all federal student loan borrowers.

Under the Pay As You Earn Plan, monthly payments should not be higher than the 10% of your disposable income. After 20 years, any outstanding balance will be forgiven. For public service workers, student loan forgiveness can be availed after 10 years.

Income-Contingent Repayment (ICR) Plan.

Under the income-Contingent Repayment Plan, monthly payments are determined based on your income, loan balance, and family size. Payments have to be recalculated annually so they can be adjusted based on these factors. Under this plan, you will either pay 20% of your monthly discretionary income, or the amount you would pay in a 12-year standard repayment plan, whichever is lesser.

The ICR plan forgives any remaining student loans after 25 years. For public service workers, remaining student loan is forgiven after 10 years.

Public Service Loan Forgiveness (PSLF) Program

The PSLF Program offers generous repayment terms to graduates who enter public service profession. However, according to CBS News, this program is underutilized because many people don’t realize that they are eligible. Public service positions include a wide range of people such as members of the U.S. Armed forces, teachers, law enforcement and emergency workers, nurses, social workers, and employees of non-profit organization with a 501(c) (3) designation.

Indeed, the Obama Student Loan Forgiveness Program has made student loan repayment more manageable. Perhaps, it could be the key to achieve the President’s own dream for our nation. He envisions that, “by 2020, America will once again have the highest proportion of college graduates in the world.”



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