If you are wondering whether Obama's student loan forgiveness program, known as REPAYE or the revised pay as you earn scheme, is the right option for your specific situation, then it's important to learn as much as you can about it. In simple terms, the repayment program caps the monthly bills of the person borrowing for education to up to ten percent of income, and ensures that the debt is forgiven following 20 years of payment.
Recently, the terms of this repayment plan were only available to people who had particularly low income regardless of their debt, but the Obama administration has recently opened this program to anyone who had a direct federal loan, regardless of personal circumstances.
1. You're Not Forgiven Straight Away
The first thing to know about Obama's Student Loan Forgiveness Program is that it doesn't simply write off your debt, as wonderful as that might be. Instead, the plan allows you to access complete debt forgiveness after you've already given twenty years worth of monthly payments for your student debt. Simply put, this means that regardless of how much money you borrow for your education, or the amount of money that you still owe after 20 years, you will no longer be required to make any more monthly payments. This can represent a good deal for people who borrow a lot of money for college, but don't necessarily make enough money to pay the debt off.
2. All Direct Federal Loans Are Eligible
The next important thing to know about Obama's student loan forgiveness program is that all direct federal loans can be forgiven so long as they are not in default. In other words, if you have an old bank-based loan from the Federal Family Education Loan Program or a Perkins loan, then you might be able to consolidate that debt into a direct loan so that you can take advantage of the new REPAYE scheme. However, it is important to note that Parent Plus loans aren't eligible for the program.
3. Your Repayments Will Still Be Based on Your Income
Although you don't need to have a low income to qualify for Obama's student loan forgiveness program, the amount you have to pay on a monthly basis will be based on your discretionary income, which is whatever you earn that is above 150 percent of the federal poverty line. This simply means that if your income is higher, your monthly repayments will be capped at a higher rate, whereas if your income is low, you may not have to pay anything at all.
4. The Remaining Debt Is Wiped Away After 20 Years
After you have made twenty years' worth of payments on your student loans, the remaining unpaid debt will be erased. The only problem with this is that the Internal Revenue Service may consider the amount that has been forgiven as taxable income. Unless Congress changes those rules, the amount of loan that is forgiven will be added onto your income, which could bring you to a higher tax bracket.