On December 21, 2012, the Department of Education started offering a more favorable version of the income-based federal student loan repayment program. The “Pay As You Earn” program allows eligible borrowers to cap monthly payments to 10% of discretionary income, and have their loans forgiven after 20 years.
If you need to make lower monthly payments, this plan may be for you as the “Pay As You Earn” helps keep your monthly student loan payments affordable. This newest version of the income-based repayment (IBR) usually has the lowest monthly payment amount of the repayment plans based on your income. The program will set maximum monthly payments based on income and family size, which can adjust each year.
There are 4 types of income-driven repayment plans based on your income and family size:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan)
- Pay As You Earn Repayment Plan (PAYE Plan)
- Income-Based Repayment Plan (IBR Plan)
- Income-Contingent Repayment Plan (ICR Plan)
If you’d like to repay your federal student loans under an income-driven plan, you need to fill out an application.
Borrowers must also qualify for partial financial hardship based on the portion of their income standard repayments. If the monthly amount you would be required to pay on your eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to repay under Pay As You Earn, you have a partial financial hardship.
The program applies only to certain direct federal loans, and not to private loans from banks and other non-federal lenders.
The Pay As You Earn program also offers loan forgiveness after 10 years to those involved in public service who have made all their payments on time.
Outstanding student loan debt, by some estimates, has surpassed $1 trillion; and, two-thirds of the national college class of 2011 completed school with student loan debt. The typical graduate owed on average $26,600 according to the Project on Student Debt.
In order to address the growing debt graduates face, President Obama and his administration took regulatory measures to make sure this new program would be available sooner than the 2014 original date Congress had scheduled.
To learn more about the “Pay As You Earn” program visit: