As part of the Obama Administration’s education initiatives, new rules are in place that could radically change the way we repay student loans. Below are a few things you should know about Obama’s student loan forgiveness program:
Under Obama’s student loan forgiveness rules, new borrowers can choose to spend no more than 10% of their income on repaying student loans. This means that student loan repayments will be pegged to how much borrowers earn, making it possible for low-income borrowers to repay their loans and pay for daily living expenses.
The reality is that, no matter how hard they try, some borrowers will be unable to repay their student loans. That’s why Obama’s student loan forgiveness program will forgive student loans after 20 years of payments. Also, if a borrower works in public service (for example, as a teacher, doctor, firefighter, or military service member) their student loan balance will be forgiven after 10 years of payments.
Previously, private financial institutions were given subsidies to issue federally-guaranteed student loans. Now those subsidies are ending, freeing up $68 billion dollars that will be used to fund student loan forgiveness and other education initiatives. All student loans will be issued directly from the federal government and managed by private companies with contracts from the Department of Education.
This initiative will also provide other non-loan assistance to students such as tripling the college tax credit and doubling the amount of Pell grant money available.