November 12, 2012, 4:55pm, Topics: student loans, financial aid, department of education, borrow, payment, pay as you earn
President Barack Obama’s student-loan relief program is finally official.
The U.S. Department of Education last week issued the final regulations for the new, more-generous student-loan repayment program announced by the president last October. The plan, known as “Pay as You Earn,” will allow some graduates to peg their federal loan payments to 10% of their discretionary income and then have any remaining balance forgiven after 20 years.
Borrowers will be able to apply for the plan by the end of this year and can use the department’s online portal (studentloans.gov) to do so.
But not everyone’s eligible. To qualify, you’ll need to have taken out at least one federal loan in or after fiscal year 2012 (Oct. 1, 2011, through Sept. 30, 2012) and no loans before fiscal year 2008 (Oct. 1, 2007, through Sept. 30, 2012 2008). That means unless you’re a recent graduate or are still in school, you probably won’t qualify, says Mark Kantrowitz, publisher of FinAid.org, a financial-aid website.
Those who don’t qualify can still apply under the older version of the program, where payments are 15% of discretionary income and balances are forgiven after 25 years. These are both alternatives to the standard 10-year repayment plan.
The program has taken on a role in the presidential race, with Obama’s supporters saying it provides crucial relief at a time when student debt loads are rising. For one, former President Bill Clinton lauded the package of student-loan reforms that includes this initiative in his speech at the Democratic National Convention. “You need to tell every voter where you live about this,” he said of the changes.
Some are worried that word of the program isn’t spreading. While the online portal for income-pegged repayment should help more eligible borrowers register for the program, many still don’t know they have these options for lowering their monthly loan payments, says Pauline Abernathy, vice president of the Institute for College Access and Success, a nonprofit group that monitors student debt.
The new program is estimated to cost the federal government $2.1 billion over 10 years. The Education Department will make up that cost through changes like loan consolidation, the agency says.