There is a new proposal going into effect this year that was issued by the president. This new executive order is expected to be made effective by the end of the year actually so most individuals will be affected by it during the 2016 year which is the second half of the current school year. You’ll want to know what the new rules are going to be for loans as well as for getting them waived in the end. No one wants to pay for a loan they don’t have to pay after all.
There are a few different ways that you can qualify for forgiveness with the federal government. It’s important to keep in mind which program you qualify for and at what point you need to make the decision to work towards different programs. If you don’t implement a plan soon enough it could result in problems for you in the long run. Make sure you understand all the rules and requirements for all programs that you may qualify for so you know which to apply for or follow through with.
General forgiveness applies to anyone who is making payments in one of two ways. If you are making income based payments of 15% of your income (soon to be 10% under the new executive order) for a period of 25 years the remainder of your student loan will be waived. This means you will only have to make the payments for a period of 25 years and whatever has not been paid at that time will no longer be owed. This is great if you don’t have a lot of income and do have a lot of loan debt.
The second method of forgiveness is through PAYE. This is short for Pay as You Earn and requires you to pay 10% of your income for 20 years (this is only available to newer borrowers). If you have paid at least 10% of your income for that period of 20 years you will no longer be required to make any further payments. The remainder of the amount of money owed will simply be forgiven by the federal government.
The final method of forgiveness (that we will discuss anyway) is the Public Service Loan Forgiveness program. (For more information about other loan forgiveness methods check out this article.) Under this program you would need to get a public service worker position and hold it as a full-time position for 120 months (equal to 10 years). This could be a position with the government or with a 501©(3) organization. Remember that the position must be held for 10 consecutive years which means you can’t switch around a bunch of different jobs and still qualify.
What is Waived?
If you owe an amount greater than $57,500 in student loans this amount cannot be waived through the Public Service Loan Forgiveness program. Previously the amount owed in student loans did not matter and anyone was able to waive their loan amount through this program. Under the new rules however, the amount over this will still be owed at the end of the waiver period. Individuals who qualify for this program will also need to make sure that they are paying into the loan under an appropriate PAYE program from the beginning or none of their loan payments will be counted towards PSLF. If you do not make payments under PAYE you will be required to make additional payments with the program before you qualify for reaching the correct status to have your loans forgiven. Keep this in mind When you get that first announcement telling you that your loan is due.
Benefits and Risks
For those who are obtaining associate or bachelor’s degrees this is a good program which will help them to pay off student loan debts more quickly or to have them waived if they are not making enough money. This is because the majority of individuals with these degrees will owe less than the maximum of $57,500. They will be able to get any amount still owed forgiven after the ten year required payment period.
For those who are receiving higher level degrees such as master’s, doctorate, J.D., etc. this will not be as good of a program. These individuals will end up paying a very high amount of money because their total loan debt will far exceed the limit of $57,500. Under the old rules they would receive forgiveness for their entire loans however under the new plan they will receive forgiveness for only a small portion of the loan. They will still be required to pay through an income driven system which requires a high payment but they will have to continue doing this for a longer period of time without the ability to remove the debt entirely.
For those who are affected by this program it’s important to consider the different ramifications and understand how it will affect you. If it is going to be a benefit to you this is a good thing and you should most definitely be happy with the way the program will work. On the other hand for those who will be negatively affected and required to pay out even more of their money in order to pay off loans than they ever would have before there is definitely something to prepare for.
Keep in mind that this has not gone into effect yet which means there is still time to write letters and voice your opinion. Let your representatives know what you think of this program. Because of the way it affects different people you will want to consider your own situation and determine what you should do. Find out even more at this website which will help you through the 2015 budget proposal and what it will mean to you as you continue or begin attending college for yourself. Remember that you can still make a difference either way whether you support or oppose this bill.