How did Obama change student loan repayment?


News | by — July 4, 2012

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How did Obama change student loan repayment?

The Obama student loan reform (The Healthcare and Education Reconciliation Act of 2010) made a variety of changes for future borrowers. The act did not affect those who already have student loans and are no longer borrowing more funds.

The act purports to stabilize funding and increase the amounts of Pell Grants. The increases are an effort to match inflation and rising costs of tuition. However, those inflation matched increases don’t go into effect until 2013 and then only for the next five years.

The act expands the Income Based Repayment (IBR) Program. According to the Department of Education, the current IBR program allows borrowers to make monthly payments equal to 15% of their disposable income; the new plan drops that amount to 10% of disposable income. The current plan provides an opportunity for debt forgiveness after 25 years of payments. Under the new IBR, borrowers’ loans may be forgiven after 20 years, or after only 10 years if the person works in public service. However, these beneficial changes only affect borrowers who borrow for the first time after 2014. In addition, neither the current plan or the new plan for those that borrow after 2014 includes borrowers who take out Parent PLUS loans.

In addition to the enacted legislation, Obama has also proposed other student loan related legislation. The proposed legislation would open the new IBR plan (10% of disposable income/20 year forgiveness) to all current debtors and new borrowers. However, it has not passed congress yet.

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