Posts Tagged ‘pay as you earn program


a new program for college loan affordability

A new federal program should make it easier for some recent college graduates to keep their student-loan payments manageable.

The new program, known as the “Pay as You Earn Repayment Plan,” allows eligible borrowers greatly lower their monthly loan payments and qualify for loan forgiveness quicker than previously.


If your debt exceeds your annual income, the new program will probably work for you.  The new program comes at a time when rising student-loan obligations—amid a still poor job market—have weighed greatly on many borrowers.

Typically, federal student loans must be repaid within 10 years. At current interest rates, that can work out to a monthly payment of roughly $300 for a borrower with $26,000 in debt.

Pay as You Earn, by contrast, limits student-loan payments to 10% of “discretionary income” as defined by government formulas. Borrowers who make regular payments could have the remaining unpaid amounts forgiven after 20 years.

In some situations, borrowers with low incomes could be required to make a zero-dollar payment and would still be considered current on their loan. Monthly payments can increase or decrease each year based on the borrower’s income and family size.

The new program is more generous than the Obama administration’s Income-Based Repayment Plan, or IBR, launched in 2009. IBR caps loan payments at 15% of discretionary income, and borrowers can have unpaid amounts forgiven after 25 years.

Under both programs, borrowers with public-service jobs may qualify for loan forgiveness after just 10 years.

Pay as You Earn is available only to borrowers with federal direct student loans, but other borrowers can consolidate existing federal student loans into a direct loan to take advantage of the program, provided they meet other requirements.

To be eligible for the program, borrowers must have obtained their first federal student loan after Sept. 30, 2007, and received at least one federal student loan after Sept. 30, 2011. Borrowers also must meet eligibility cutoffs based on the size of their debt, their discretionary income and family size.

The new program isn’t for everyone. Since the loan is repaid over a longer time period, some borrowers could wind up paying more interest than they might have otherwise.

To remain in the program, borrowers also must provide their loan servicer with updated information about their income and family size each year.

Under current federal rules, many borrowers could face a tax bill on the amount of debt that is forgiven. Debt forgiven under the public-service loan-forgiveness program is currently tax-free.

If you are being crushed by college loans, please contact the Zarcone Law Firm at 619-800-3082 for a FREE consultation.


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