For a lot of students from the Class of 2014, the new student loan forgiveness program may come as a major relief. Students who took huge loans to attend college can apply for the student loan forgiveness program if they qualify. It is important to understand that taking a loan to attend college is likely to be your biggest expense after school or graduation.
When it comes to paying back your Federal Student loans, you will have to start from November or December. Most lenders give a six-month grace period to new graduates on Federal Student loans. Depending on your income or if you are still looking for work, you might be able to qualify for a plan with lower payments.
Qualifying for the Obama Student Loan Forgiveness Program
In the case your total debt exceeds your annual income, you will be able to qualify for some kind of payment plan. This will help you receive a major financial benefit from simple participation. An income driven plan offers numerous benefits to students who are burdened by Federal Student Loans.
According to most industry experts, income driven plans have existed for a long time. However, the new expansion plan introduced by Obama makes sure you receive some major benefits. The Consumer Financial Protection Bureau (CFPB) estimates that around 25% American workers will be eligible for standard Public Service Loan Forgiveness programs.
Unfortunately, most students are still unaware of their options. The PAYE or Pay As You Earn plan was recently introduced by the Obama administration. As per this repayment plan, a Federal Student Loan borrowers’ monthly payments are capped at 10% of the discretionary income. Moreover, when 20 years have passed, the balance is forgiven.
The scenario is even better for people working in the Government sector or Non-Profit organizations. These students can get their balance amount forgiven in 10 years. However, it is worth mentioning that the payment plan is available to students who took loans after 1st October, 2007.
If you belong to the category of borrowers who took a loan before 1st October, 2007, you may qualify for another income-based repayment plan. However, the capped rate will be 15% of the income. It’s worth mentioning that payments change with basic changes in your income. The remaining debt will be forgiven after 25 years.
These borrowers may even qualify for income contingent repayment plans. In these plans, payments are calculated on the basis of your gross income, the total amount of Federal loans and family size. You can visit the Department of Education’s official website to know more about these plans.
Earlier this year, the Government even proposed capping the amount of debt that is forgiven for students entering the public sector. The amount has been set at $57,500 per student. After this amount, the student will have to make consistent payments for 25 years.
According to financial aid experts, the Obama Student Loan Forgiveness program has been specifically designed to address various concerns regarding debt forgiveness. With the introduction of this plan, students will receive benefits, and institutions may be encouraged to lower prices.