If you've searched for "Obama Loan forgiveness" in your favorite search engine, then chances are that you're looking for information on how to soften the blow of student loans that may have been accrued during the pursuit of your education. This term for students is actually a nickname used for a program that is otherwise known as the William Ford Direct Loan program. However, the reason that it has obtained this name is many people only know about the process because of changes made by President Obama during 2010. The loan forgiveness operation came into play during this time, when Obama signed the Health Care and Education Reconciliation Act.
If you're considering getting involved with Obama loan forgiveness programs for your student debt, then it's worth being aware that all of the programs offered are for federal loans only. This means that people who borrowed using private loans may not be able to benefit.
Changes that Led to Obama Loan Forgiveness
When the act was signed by President Obama, changes were made that allow for certain benefits for students. For example, the federal government will now no longer give subsidies to private institutions for lending regarding federally backed loans. What's more, borrowers of loans beginning in 2014 qualified to make payments according to what equates to 10% of their annual discretionary income. At the same time, the change meant that new borrowers would also have the opportunity to be forgiven for their loans after 20 years of qualifying payments, instead of 25.
Benefits of The Obama Loan Forgiveness Program
For students, the Obama loan forgiveness program offers a wide range of potential benefits to take advantage of. For example, the borrowers will have the opportunity to consolidate all of their federal student loans into a single new loan. What's more, that consolidated loan will give the borrowers a chance to select a repayment program that appears affordable in their circumstances.
For example, the direct loan program will offer a number of different plans for repayment, including standard repayment, wherein the borrower continues to pay a fixed amount each month throughout the lifespan of the loan. The payments in this case are determined by interest rates, borrowed amounts, and loan terms. Another option is the graduated repayment plan, wherein the borrowers are allowed to make payments that are often lower than the standard repayment plan, though these
amounts may increase every two years.
One plan is known as the income contingent plan, where the borrowers make payments according to their family size, income, loan balance, and level of interest. Similarly, income based repayment pushes borrowers to pay strictly according to their income level and family size. However, unlike the income contingent plan, interest rate and loan balance are not used to calculate monthly payments. Lastly, the final option is known as pay-as-you-earn (PAYE). This plan has the lowest monthly payment for most people. It is also based on income, but uses around 10% of your discretionary income as a payment, rather than the 15% used in income-based repayment.