Obama Student Loan Forgiveness Program (PAYE): As a student, I’m sure we have been wondering how to take full advantage of the program launched by Obama. On this article you will briefed on everything you need to know about it. Also how to take full advantage of it.
Obama Student Loan Forgiveness: Pay As You Earn (PAYE)
President Obama has been a champion of helping people who have been burdened by student loan debt. But a lot of people are having trouble finding out the new program he created to help students in debt. The Obama Student Loan Forgiveness Program, which people are searching for, is technically called the Pay As You Earn (PAYE) program.
The goal of Obama Student Loan forgiveness is simply to keep student loan debt manageable and then forgive the remaining balance if certain requirements are met.
The intention of the law is to not place undue burden on our country’s college graduates, especially in economic times where personal debts are at a very high level; it is sound in principle. The fact is that more and more people are going to college, in fact the number of college graduates in the U.S. over the past decade is up well over 30 percent, and with that increase in students, comes a lot of new debt.
How will it play out in practice?
Obama’s student loan forgiveness legislation fully kicked in at the end of the year in 2015; however, the terms only apply to new loan borrowers at first. If you took out loans before 2007 or stopped borrowing in 2011, you will become eligible for this program within this time period, so, of course, you need to take your own personal situation into account and see if this applies to you.
The cap of your student loans will be based on your income, so the less you earn the less you will pay back each month, which is certainly fair and to be applauded. This is put into place to make sure that an increase in debt default does not get out of hand, and that is smart politics and economics in the short term.
The cap limit is 10% of your income level every month. Sometimes it hurts to make more money, but if you are able to use your money wisely, you can always start paying down that debt faster. If you’re able to do this you will end up paying much less than if you let it go for a longer period of time.
It is always better to pay faster, and though it will cost you more if you earn more, you are also paying down your debts at a faster rate. (So, choosing a career that pays well from the outset is obviously something to seriously consider.)
Am I Eligible to Taking Advantage of it?
Obama’s student loan forgiveness law, as it is written right now, does state that after a twenty-year period of paying off your loans the remainder can be removed from the balance sheet.
However, the way the political landscape appears as well as the national debt, we find it impossible to determine if this will stay in place as written in the long term. As written, the law states that after 20 years of payments at a certain level of income the remainder of the loan balance will be wiped out.
The Pay As You Earn Program is a great way to get student loan forgiveness while also making your student loan payments reasonable. This plan sponsored by Obama is technically a repayment program, not a student loan forgiveness program, which is one of the ways he was able to sign it into law. However, it has a student loan forgiveness option at the end, which is helpful for borrowers.
How Does it Works?
It works like this: you simply need to call you lender and ask to be enrolled in the PAYE Program. In order to setup the program, you will need to provide your tax returns for the previous year, and pay stubs from this year. It will typically take 60-90 days to process your application.
Based on the paperwork you submit, the Department of Education calculates a “Discretionary Income” for you. The actual amount of your “discretionary income” is determined by a formula based on your family size and income tax returns.
Student loans gov has a great calculator that can help determine the amount. Under Obama’s PAYE plan, your student loan payment will not exceed 10% of your discretionary income – which is a huge benefit for borrowers.
But that’s not all. After making payments under the PAYE program for 20 years, any remaining balance you have on the loan will be forgiven. That’s the biggest benefit for borrowers. Not only do you get reasonable payments, but you also can have the remaining balance forgiven if you make all your payments in the program.
Do I Still Get to Pay Tax?
Yes you will. It’s important to note that under Obama’s Student Loan Forgiveness Plan, you will owe taxes on any loan balance forgiven. This is what makes it different from traditional student loan forgiveness plans.
For example, if you have $50,000 in student loan debt forgiven under the plan, you could owe around $11,000 in Federal income tax. That could be tough to pay, but for many, it’s easier to pay this smaller amount than the original student loan balance. Plus, you can setup payment plans from the IRS as well, which could ease the burden.
It all comes down to planning for the long term and looking closely at your very personal debt picture. President Obama’s student loan forgiveness efforts are simply one piece of a much more complicated pie. The long and short of the whole debt solution is to pay down debt as fast as you can and to live beneath your means, if we can do this, we stand to retire in a way that befits our mighty efforts, if we don’t we will struggle, it is that simple.
Other Obama Loan Forgiveness Programs Available
– Standard Repayment Plan
If you have federal student loans that qualify, the Standard Repayment Plan lets you pay off your loans at a fixed rate for 10 years, after which your loans will be paid off completely.
– Income-Contingent Repayment (ICR) Plan
To qualify for the Income-Contingent Repayment (ICR) Plan, you’ll first need to have eligible federal student loans.
The ICR Plan is ideal for anyone with a low income, there isn’t an income requirement associated with the plan. Through this program, your monthly payments are based on your discretionary income, or the amount you’d pay over 12 years on a fixed repayment plan.
– Income-Based Repayment (IBR) Plans
There are two IBR programs available, including the original Income-Based Repayment (IBR) Plan and the IBR for New Borrowers Plan. Like other plans, you’ll need to have federal student loans that qualify, and you’ll also need to sign up for the program that is designed for when your loans originated.