Obama Student Loan Forgiveness

studentsThe United States produces more college graduates than any other nation in the world, yet the overwhelming majority of these graduates finish their education with student loan debt. According to the Institute for College Access & Success, over 70 percent of undergraduates who completed a four-year program had student loans to repay. The average debt was nearly $29,500 in 2012, compared with close to $23,500 in 2008. This debt load is especially burdensome for graduates who go to work in public service professions, like teaching or law enforcement. While these professions are vital to the welfare of the American public, they may not pay well enough to cover large monthly loan payments. How can today’s college students pursue their academic dreams without compromising their future financial stability? In 2010, President Barack Obama took a step forward in student loan reform by signing the Health Care and Education Reconciliation Act. The student loan initiatives included in this new law are now informally known as the “Obama student loan forgiveness” plan. As of 2014, Americans enrolling in college can now benefit from expanded repayment plans and more generous repayment terms. The ultimate goal of Obama’s student loan reform is to place an affordable college education within the reach of more Americans.

What if I Enrolled in College Before 2014?

College University Cafeteria In 2012, Obama initiated a “Pay as You Earn” program to help college students take advantage of student loan reform before 2014. Students who enrolled in college too early to participate in the Income-Based Repayment plan may apply for the Pay as You Earn program or for an Income-Contingent Repayment Plan. Under the Pay as You Earn plan, college grads who qualified as new borrowers as of October 1, 2007 can pay a maximum of 10 percent of their disposable income on their student loans each month. After 20 years of regular payments, the loan is forgiven if there is an outstanding balance. Under the Income-Contingent Repayment Plan (ICR), there are no income requirements to meet. Borrowers can pay either 20 percent of their disposable income, or the amount that they would pay on a standard fixed repayment plan with a 12-year loan period, whichever is lower. The maximum repayment period is 25 years. With all of the income-driven repayment plans (the IBR, the ICR, and Pay as You Earn), the remaining balance on the loan is forgiven after the repayment period ends.

Do I Qualify for an Income-Based Repayment Plan?

To be considered for any of the three income-driven repayment plans, you can apply through the company that services your loan, or through the U.S. Department of Education at Studentloans.gov. To quality for the IBR under the terms of the Health Care and Education Reconciliation Act, you must meet these criteria:

The terms of the Health Care and Education Reconciliation Act do not apply to loans signed before July 1, 2014. If you have loans dated prior to July 1, 2014, the original lending terms will still be in effect. If you have an older loan, talk with your loan servicer to find out whether you qualify for the Pay as You Earn program or the Income Contingent Repayment Plan.

What Other Benefits Does the Act Provide?

In addition to making student loan repayment more manageable, Obama’s student loan reform includes the following initiatives:

Making Student Loans More Manageable

The Health Care and Education Reconciliation Act reflects the government’s growing concern about the impact of student loan debt. With so many college grads taking on unmanageable debt loads, the economy is bound to feel the effects of loan defaults and bankruptcies. These new initiatives offer hope to young adults and mature students seeking to further their education at affordable rates.

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