Student loan debt has reached an all time high of $1.2 trillion USD. It’s the second largest form of household debt among consumers after mortgages. It’s been a topic of concern within the academic and political arenas, with numerous policy attempts at easing the financial burden for students and the nation’s economy.
Much legislation has been proposed recently in an effort to help student loan borrowers manage increasing levels of debt. But the question remains: which borrowers benefit from student loan reform? Do regulations pertaining student loan debt help all borrowers, or only certain demographics?
On June 9, 2014 President Obama issued a presidential memorandum explaining the expansion of the “Pay as You Earn” (PAYE) alternative student loan repayment program. This new policy change signals the severity of the student loan situation for both the government and borrowers who struggle to payoff their education debts.
So, what are the actual changes to PAYE?
Pay As You Earn isn’t a new program and enrollment in 2013 grew almost 40 percent, making the total number of borrowers currently enrolled around 1.6 million. The PAYE expansion proposed by the Obama administration would extend eligibility to student loans that were granted before October 2007, along with including borrowers who ceased taking student loans before October of 2011.
Several million student loan borrowers have already taken advantage of other Income Driven Repayment programs that also limit monthly payments based on 10-20% of a borrower’s income, such as IBR and ICR. Another benefit under the PAYE repayment plan is that any remaining student debt after 20 years can be forgiven (keep in mind, forgiven debt will be treated by the IRS as taxable income).
The Growing Student Loan Problem
The number of student loan delinquencies continues to rise. The expansion of repayment programs helps to simplify the complexities of student loan repayment for borrowers. Those who are have a significant discrepancy between their monthly earnings and their student loan payments will benefit most from the qualification requirements of the proposed expansion.
For borrowers who are financially stable and able to make monthly payments, qualifying for Income Driven Repayment programs may be more difficult. If you’re unsure if you qualify for income driven repayment programs, you can simply apply online to find out if your eligible.
Do You Qualify for PAYE (Pay As You Earn)?
If you qualify, your payments will be determined as a percentage of discretionary income, which is calculated as any income earned above 150% of the poverty line. Borrowers who enroll in the IBR program will have a lower monthly payment under the new revisions.
If you’re not in good standing with respect to your student loan, due to delinquency or default, you will not be eligible for the expanded repayment programs until you rehabilitate your student loan.
Legislative proposals to help those under the weight of high student loan debt only underscores how important of an issue this is. As more students continue to receive financial aid in the form of private and federal student loans, the problem seems likely to get worse before it gets better.
Whether you’re experiencing difficulty in addressing your own student loan debt or are curious about
refinancing your student loans to optimize your repayment, it’s a good idea to consult with a student loan expert regarding your options. You’ll be fully informed on all of the options that are available to you, while making sure that the government has your best financial interest in mind.
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