Obama Student Loan Forgiveness Program - How to Calculate Your New Lower Payments

Wade Nembhard

President Obama's much anticipated 2010 State of the Union Speech had some very welcomed news for former and current college students dealing with massive student loan debt. His speech highlighted a new student loan forgiveness program. Here's the details of the plan and how to calculate your new payments under the student loan forgiveness program. The plan also applies to college school dropouts who have a student loan obligation.

The plan proposes two significant changes to the income-based repayment plan that was passed by Congress in 2007 and introduced in July 2009. Under the income-based repayment plan, borrowers make monthly loan payments based on their annual salary, rather than the actual amount of their current student loan debt.

Former students who sign up for income-based repayment currently pay 15% of any income in excess of 150% of the federal poverty line for their family size. This present scenario means that a single borrower with no dependents pays 15% of whatever he makes over $16,245 annually.

Under the new Obama proposal, student borrowers' payments would be lowered to 10% of their incomes above the current established levels. A single borrower with an adjusted gross income of $30,000 and owes $40,000 in student loan debt, would see monthly payments lowered from $170 per month under the current system, to $115 a month under the new Obama repayment plan.

Whats different is that with the old plan, paying off $40,000 in federal student loans over the standard 10-year period require a much higher payment of $460 a month, assuming a fixed 6.8% interest rate.

President Obama also proposed in the his speech that the federal government forgive any balances that remain unpaid after 20 years. That's five years subtracted from the current system's  time of 25 years. The government will view any forgiven balance as taxable income for former borrowers who work in the private sector. As with the current rules, former students who go into the public sector will have loans forgiven after 10 years, and the forgiven balance will not be taxable.

Only federal loans such as Stafford loans and Direct loans are qualified for the Income-based repayment plan.

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Comments 

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0 #27 4-more years 2013-05-28 15:48

I was a student Got a "welding degree".
I still owe over 17,000 doll. and got no job.I didn't have money to pay,but I bought into the scham that"a good education = a good job.Well I cant get a job and I still owe.Thank you Mr.President for understanding,I didnt plan to be screwed like this.I invested in my-self and the employers invested in China.

 

 

+2 #26 Mark 2012-02-01 15:12

Stop giving financial aid to for profit schools that have no government regulation in place to police their curriculum or their job placement success rate. A lot of worthless degrees and tuition costs two to three times the cost of community colleges and state universities. Also their default rate is actually about 45% . We the tax payer will be paying that multi billion dollar debt forever.

 

 

0 #25 2011-10-25 14:15

And we wonder why everyone with common sense and loads of debt with no jobs are at Occupy Wall Street. It's ridiculous how Filthy rich bank owners and corporate bastuurds have rigged the system to get people hooked on debt and leave them hanging in a bad economy. And for anyone who who's gonna start saying people are responsible for their own problems and finances, just take a look at how our economic system of government is set up. Those 1 percent of very wealthy people control almost everything. They then employ those 99 percent who thought they had a decent shot at the American dream and education. Now they finally see they were all duped and taken for a ride.

 

 

+2 #24 2011-10-25 14:09

Looks like Obama is bumping up efforts to get the young college grad vote on this one. It's all over the news today that he'll get the loan forgiveness program started in 2012 instead of 2014 as originally proposed. But I still see one seriously week incentive in this program while it was under Bush to this revised plan under Obama. You still have to wait a crazy 20 years before your loan gets forgiven if you're a private sector wage slave. I mean the average grad leaves college at about 21 or 22 years old. I twenty years they'll be 40 years old and those who go for masters and PhDs will be like 50 plus years old before they get forgiven. If you think credit cards were bad, student loans might fall in the realm of the blatant evil.

 

 

+1 #23 Mr Obamamatics 2011-10-02 12:46

I don't know of anyone who like student loans. You get em because you generally don't have any other options for paying for college. They come back to haunt you and bite you hard especially when your job really doesn't pay enough to cover the monthly payments with the accrued interests. I recently saw a movement going on at Facebook and other big social networks that make a lot of sense. Instead of waiting forever(Yes 10 to 20 years is like forever with interest) to be forgiven, why not forgive student load debtors much earlier especially in this bad economy. It can only help to get people spending again in other things that make sense. These student loans are sucking the life and American dream out of people, it's time the government help out and forgiving those loans much sooner than this plan was designed to do.

 

 

+2 #22 2011-09-27 14:56

I just signed a petition at signon.org to have the federal government forgive outstanding student loans as a measure to help stimulate the economy. Lets face it, most of us working in both private and public sector can barely stay above water because a massive chunk of our debt is coming from high balance student loans. It's a shame so many of us had to fall into this situation for a higher education, then we end up graduation and we're lucky if we land a job which in turn is basically providing a monthly salary to pay off that old student loan. That's no way for young people to enter the working world. This debt must go so we can focus on spending in retail and other places to stimulate our economy.

 

 

+1 #21 2011-09-12 15:41

I soooo agree with this comment. People in private or public sectors work their buts off to pay taxes and bills. Most of us have long term debts that we'll never get out of until later down the line. Much of this debt came from student loans and everyone who has these loans public or private employees should be treated the same way in this forgiveness plan. I don't think it's right that public sector employees get a break. Private workers do so much to keep the economy going, why not give them a good incentive in this deal, we can't all work for the local or federal government.

Quoting nostalgic-Jen:

If President Obama can include private sector employees loan forgiveness after ten years just like the government workers, then he's got my vote for a second term. Student loan debt serious sucks, there's no other way to put it. It's one of the few debts you can't get rid of in bankruptcy court. How's that for having your hands tied behind your back way helpless. :-?

 

 

0 #20 2011-06-11 05:10

Interesting how the debt that gets forgiven for public is not taxable but the forgiven debt for private is taxable. That makes no sense at all in my book. It's just not fair. What can I say, the government loves itself. This isn't even about democrats alone doing it either, both parties are the same culprit with this idea.

 

 

0 #19 2011-05-23 15:23

If President Obama can include private sector employees loan forgiveness after ten years just like the government workers, then he's got my vote for a second term. Student loan debt serious sucks, there's no other way to put it. It's one of the few debts you can't get rid of in bankruptcy court. How's that for having your hands tied behind your back way helpless.

 

 

0 #18 2011-05-23 14:53

I've been making payments on a one hundred forty thousand dollar student loan since law school and it's barely made a dent in the balance because of ridiculous interest. I can't stand that I'm working everyday just to pay debt, and it's debt that doesn't go away because it's so high. There has to be a better way. This loan forgiveness program should extend forgiveness to non government employees after 10 years not 20. The interest these lenders rake in alone guarantee they make their money back plus more. How much more greedy can they get?

 

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