Last week, President Obama announced the "Pay as You Earn" plan, which is supposed to make it easier for about 1.6 million students to pay back their loans. Right now, the student loan debt in the US totals up to over $1 trillion, which is even more than credit card debt. And the burden seems to keep growing — students who graduated in the Spring of last year had about $25,250 in loans each, which is up five percent from the previous years, reported The Project on Student Debt.
What is it exactly?
In 2014, borrowers will be allowed reduce their loan payments toward all major types of federal student loans to 10 percent of their discretionary income through the Income-Based Repayment plan. The IBR was passed last year, and the "Pay as You Earn" plan that was proposed by the president on Oct. 26 is the accelerated and improved version of it.
With the "Pay As You Earn" plan, 1.6 million students can start to cap their loan payments next year, and after 20 years of payment, their balance will be forgiven. Further, six million borrowers will be allowed to consolidate loans and reduce interest rates in January.
Who qualifies for it?
You qualify for it if your student loan debt is high compared to your income and family size. There's an online calculator at the US Department of Education website in which you can plug in numbers to see what your chances are. The calculator comes up with your monthly payment under the plan, and if it is lower than the monthly payment you're going to be paying on your eligible loans under a 10-year standard repayment plan, you will be eligible to repay your loans under the income-based repayment plan.
Read on to find out how to start.
How will this benefit me?
You'll be paying less than the amount you'd have to pay under a 10-year standard repayment plan, but you'll also have a longer repayment time and have to pay higher interest. If you're under the IBR plan, your balance will be forgiven after 20 years of payment. This option is definitely great for those who can partake in it — recent graduates with low-paying jobs and large amounts of debt.
How do you start?
Contact your loan service provider to apply for IBR. If you don't know who your lender is, you can look it up on the National Student Loan Data System. If you're looking for more specific information, visit this site for a list of links to applications and information from the biggest loan providers.