Case Study: My Experience With Lenders

4 Aug

Case Study: My Experience With Lenders

An Overview of the Obama Student Loan Forgiveness Program

As President Obama modified a portion of the 2010 Direct Loan program upon signing the Health Care and Education Reconciliation Act of 2010, he gave rise to the Obama Student Loan Forgiveness program. It’s important to remember that all the programs only cover federal and not private student loan borrowers.

The following are some of the changes President Obama implemented:

> No more subsidies to private lenders for federally backed loans

> 10% of borrowers’ discretionary income as payment for loans that started in 2014

> Eligibility for student loan forgiveness after 20 years instead of 25 years on qualifying payments

> Money to be spent on poor and minority student funding and boost college funding
Repayment Plans

The Student Loan Forgiveness Obama provides borrowers five options for repayment:

1. Standard Repayment

The borrower will pay a permanent amount every month month for the life of the loan. The payment will depend on the amount borrowed, interest rate, and the loan term.

2. Graduated Repayment

While the borrower can pay lower than the standard repayment plan, the total amount to be paid off will increase every two years.

3. Income Contingent(ICR)

Under this Student Loan Forgiveness Obama plan option, the borrower will be able to pay based on the size of their income and family, their loan balance, and the interest rate.

4. Income Based(IBR)

Payment as per this Student Loan Forgiveness Obama plan is strictly based on the borrower’s family size and income, meaning interest rate and loan balance have no effect. Fifteen percent of the borrower’s discretionary income will be paid to their federal student loans.

5. Pay As You Earn(PAYE)

This Student Loan Forgiveness Obama plan generally has the cheapest monthly payment, and based too on borrower’s income; however, only 10% of the loaner’s discretionary income must be paid as opposed to 15% in IBR. The catch is, this repayment plan follows stricter qualifying rules than the rest.

Interest Forgiveness

Interest in the IBR will be completely separate from the subsidized portion of the direct loan as per the Student Loan Forgiveness Obama program. However, this rule only covers the first three years of the borrower’s IBR payment, and only if such payment is lower than what is typically due in interest. This amount can sum up to as much as thousands of dollars, depending on the type of payment for which the borrower is qualified, and on the loan balance.

End-of-Term Student Loan Forgiveness

Under the Income Based, Pay As You Earn and Income Contingent repayment plans, any remaining balance at the end of the term would be forgiven. The term of the loan goes between 20 to 25 years, depending on the original date of the loan and the repayment plan selected. How much is forgiven depends on the original loan amount, the borrower’s current income, and how much this income fluctuated during the repayment term.