Obama Student Loan Forgiveness
Student loans are one of the biggest causes of debt in the United States. President Obama, who was elected in 2008, proposed the Obama student loan forgiveness program in fall of 2011. This program was actually part of his election campaign back in the year 2007. The idea of this plan is to eliminate a certain amount of debt that is affecting a large amount of Americans. This plan only applies to federal student loans.
His plan has no impact on any private loans taken out by students to pay for college education. President Obama’s biggest saying in this is a college education is only worth so much when the debt you receive is so high. This statement can be controversial because other people tend to believe a college education is a priceless necessity for a successful life.
Although Obama’s loan forgiveness program has been introduced numerous times over the past four years it was not till spring 2012 that it actually became effective. The stipulations get kind of tricky though. Currently this plan only applies to those who borrow before July 2012. There is currently no information on current borrowers who take out federal student loans after this point. So the biggest question seems to be is how the Obama student loan forgiveness program works.
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How Obama Student Loan Forgiveness Program Does Work?
The Obama student loan forgiveness program works by capping interest rates on federal student loans before the date of July 2012. After that the plan takes your current income and makes your payments only 10% of your income. It does not matter if you make more in the future. The rate stays at 10% of your income and is to never exceed that amount. There is also a clause in his plan that states if you consolidate your federal student loans 0.25% of the monthly payment will be reduced and even an additional .25% if you agree for the payment to automatically be taken out of a certain funding account whether it be a checking and or savings account. The only other benefit under the plan is that you can now get economic hardship forgiveness for ten years. Previously deferments and things of this nature were only up to a year. This is a huge benefit if something happens to your physically, mentally, financially, or basically anything that interferes with your ability to currently pay any amount on your student federal loans.
Lastly there are stipulations to even being eligible for this plan. The stipulations are pretty high and would really only help students who had been out of college a certain amount of time. The plan requires that you have made a minimum of one hundred and twenty payments already that usually equal about ten years already that you have been paying on your loans. It is also required to be a United States citizen, that you completed your college education, that none of your loans are in default, and of course that you have taken out a student federal loan.
As you can see the Obama student loan forgiveness plan is a great plan to those who are eligible and can be a great benefit. The biggest issue with this plan is that many students will never be eligible and then actually need the plan. The plan definitely has a good basis and hopefully will be edited over the next few years or a new plan will come into place.
More on Obama Student Loan Forgiveness
If you have heard of the Obama Student Loan Forgiveness program, you are probably wondering exactly what it is and how it can help you. Simply put, the Obama plan is the new name given to the previous direct loan program that you were used to. Below, we will go over some of the major changes and benefits, so that you can better understand what to expect and how this program can help you in the long run.
What Changes Were Actually Made?
When people begin to talk about the student loan programs, you may confuse all of the different programs and what they mean. As far as you are concerned, it is a loan to pay for school, right?
There are some important changes that were made to the Federal Direct Loan Program by Obama. Now, if you are a new borrower, the changes may not even mean anything to you and they may not affect you as they would have, had you borrowed loans previously.
But, for those of you who are not new to student loans, let’s go over the changes made:
· Student loan borrowers will be able to apply for student loan forgiveness after 20 years of qualifying payments, which was brought down from 25 years
· Subsidies will not be provided to any private lenders from the federal government on loans that are backed federally
· Borrowers who have new loans that originated in 2014 and on will be able to qualify for plans that calculate how much they pay based on a portion of their discretionary income
· Money from schools will help fund minority and low income students
How Do I Benefit from These Changes?
You may be wondering how these changes actually affect you or if they will affect you at all. In fact, many students benefit from the program and it is important for you to understand, so that way, you can reap the most benefits available.
1. Graduated Repayments
The graduated repayment plan has been reworked to provide borrowers with a lower monthly payment than the standard plan. The amount will initially be lower, but will gradually increase in price every two years.
2. Standard Repayments
This plan was reworked and a student borrower will make a monthly payment each month that is fixed. The payment does not increase or decrease in size, so it is predictable. The payment for the standard repayment plan is determined by the terms established for the loan, the amount that was borrowed, and the interest rate on the loan. Some students may have monthly payments that are higher than others.
3. Income Based Repayment Plans (IBR)
This payment plan is beneficial for many students and borrowers are only required to make a monthly payment based on a calculation that takes into account their income and size of their family. When it comes to calculating the monthly payment for this plan, the student’s loan amount and interest rate is NOT considered. The student will only pay 15 percent of their discretionary income. Through this plan, it is possible for students to have a monthly payment of $0.
4. Income Contingent Repayment Plans (ICR)
This plan is similar to the income based plan, however, it takes into consider the income of the borrower, their family size, the size of the loan, and the rate of interest on said loan. The amount a student pays will vary based on this number and can also be as low as $0 per month.
5. Pay As You Earn Plans (PAYE)
This repayment plan is one that is chosen by many students. This plan is based off of your income and will use 10 percent of what your discretionary income is to figure out your monthly payment. This is five percent less than the income based plan. Monthly payments for this plan can be $0 per month as well, but to qualify for this type of a repayment plan, you will need to meet all of the requirements.
Even More Benefits for You to Enjoy
If you thought those were the only benefits, there are some more to go along with them. The above benefits are ideal for all students and will benefit each student differently. For example, one student may need the financial relief and will enjoy having a $0 monthly payment until they can get on their feet while another student may be able to afford a monthly payment, but they cannot afford the full amount that other plans require. Whether you choose or qualify for an income based plan or not, you will benefit under the new Obama Loan Forgiveness plan.
Forgiveness Once You Reach 20 or 25 Years of Payments
One of the benefits that the new Obama forgiveness plan offers is student loan forgiveness once you reach the end of your term. This means that you have made 20 years of qualifying payments. Once you reach this number, you can apply to have your student loans forgiven.
Before you apply though, you need to make sure that you actually do qualify. Qualifying payments are considered ones that are:
· Made on time or not more than 15 days past the due date
· Made under a qualifying repayment plan
· Is not less than the amount stated on the bill
The plans that qualify for loan forgiveness when they reach the end of the term include the income contingent, pay as you earn, and income based plans. Of course, you do need to keep in mind that when the loan balance is forgiven, you must claim the forgiven balance as income on your tax return for that year.
Forgiveness of Interest
One of the major benefits and one that will help almost all students is the forgiveness of interest under the new Obama Forgiveness program. What this means is that when you are in the income based repayment plan, your interest does not capitalize on the portion of your loan that is subsidized.
The interest forgiveness is only applied on the first three years of your income based repayment plan and is ONLY applied if the amount you owe is less than that what you would normally pay in interest. If you do qualify to have your interest forgiven, you will save thousands of dollars over the course of those three years.
Considerations of the Obama Student Loan Forgiveness Program
One of the things that confuses students the most is whether or not the Obama forgiveness program is the same as the Public Service Loan Forgiveness program. They are NOT the same and to confuse the two would mean that you may make unnecessary payments, disqualify yourself under the PSLF program, or you may miss out on forgiveness altogether.
In fact, to qualify for the PLSF program, you need to be enrolled in a qualifying payment plan, which is considered either the pay as you earn plan, income contingent, income based, or a standard repayment plan. The key thing here is that for the PSLF program, you only need to make 120 qualifying payments, which equivocates to 10 years instead of the 20 or 25 years under the Obama forgiveness plan.
When it comes down to it, you should explore all of your loan forgiveness options because not all programs are linked to or associated with the Obama loan forgiveness plan. In fact, the teacher loan forgiveness, nurses loan forgiveness, and disability forgiveness plans are NOT related to the Obama forgiveness plan. Students who confuse the two plans will find that they do not receive the forgiveness they desire.
Another thing you need to keep in mind is that you should NEVER stop making payments when it comes to your student loans. You need to wait until you receive a notice or letter approving your forgiveness and telling you that you can stop making payments. Failure to make payments could disqualify you and require you to continue paying on your loans or cause you to go into default.
Lastly, you should check each year to make sure that you are meeting all eligibility requirements and that you are not missing any payments. On some of the plans, late payments or missed payments can cause the qualifying payment calculator to restart.
If you are interested in the Obama Student Loan Forgiveness program or any other program that offers forgiveness, speak with your student loan advisor today.
Final Thoughts on the Program
The Obama Student Loan Forgiveness program is designed to help alleviate some of the pressures that college students are facing when it comes to their increasing student loan debt. With the national average falling somewhere between $30,000 and $35,000, students are panicking and unable to easily afford the bills they receive in their mailbox.
With the many repayment options available and the new Obama forgiveness plan, students should be able to better manage their student loans and find that they do not have to look forward to years of poverty or debt.