President Obama announced his new “Pay As You Earn” proposal today, designed to ease the burden of student loans.
His administration says it will reduce monthly payments for 1.5 million borrowers, consolidate loans, and reduce interest rates for about 6 million recent college grads.Here, we answer the most common questions readers asked us about the plan:
How much will my loans be reduced?
Starting in 2014, students should be able to reduce their monthly student loan payments to 10 per cent of their discretionary income. Currently, the law allows borrowers to limit their loan payments to 15 per cent of their funds.
What if I need help faster than 2014?
If the proposal goes through, 1.6 million college students will be able to cap their loan payments at 10 per cent starting next year.
But what if I can’t pay for a very long time?
The government will forgive the balance of your debt after 20 years instead of 25, as the current law requires.
Who will this plan affect the most?
Those of you with lower-paying jobs. If you’re in one of these jobs, Obama says his plan could reduce your payments by hundreds of dollars a month.
How do I know if I qualify for some of these benefits?
Visit the website to find out. A word of warning: The proposal is better designed to impact future generations of college students. Most of the plan won’t kick in until 2014.
What other benefits are included in Obama’s student loan initiative?
The proposal will allow 5.8 million borrowers who have both a Direct Loan (DL) and a Federal Family Education Loan (FFEL) to consolidate their loans and pay a single lender. You might also get a 0.5 per cent interest rate reduction on your loan. That’s definitely good news.
Does this include graduate student loans?
Unfortunately, the plan is geared toward recent college graduates.
How can I find out if I’m eligible for the loan consolidation?
The federal loan service will contact you early next year if you qualify.