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Understanding Obama’s New Student Loan Plan

Aug 15, 2014

by Suada Kolovic

With the final month of summer rapidly slipping away, now is the time to buckle down and finalize how you're going to fund your college education. Whether that entails a full-ride scholarship (way to go!), an impressive financial aid package or even necessary loans, it's important to understand your options. Some of you might even be considering President Obama's Pay As You Earn Repayment Plan...if you can figure out what it involves or if it's even an option. If you're confused about this plan, you're in luck: U.S. News and World Report has broken down the big questions you need answered below:

  • Will these updates help me? If you have federal student loans, maybe. Starting in 2015, borrowers who took out loans before October 2007 or stopped borrowing by October 2011 will be eligible to take advantage of the Pay As You Earn Repayment Plan. Government officials estimate this includes an additional five million people.
  • How much could I save? Now, most federal loan borrowers are eligible for income-based repayment – a different repayment plan that has the same premise as Pay As You Earn. Unlike Pay As You Earn, however, IBR caps payments at 15 percent of one's disposable income and forgives the balance after 25 years of payments. Those differences could mean a lot, both in monthly payment amount and in the total amount paid over time.
  • Didn't the president mention loan refinancing too? He did, but in relation to a bill that Massachusetts Senator Elizabeth Warren introduced last month called the Bank on Students Emergency Loan Refinancing Act. This legislation would allow federal and private student loan borrowers with older, higher interest loans to consolidate them within the direct loan program at today's lower fixed interest rates. That bill still has to pass both the Senate and the House, something that may not happen because Republicans are opposed to paying for the bill with a gradual increase in tax rates for those in the higher income brackets.
  • What else should I know? There is still a long way to go before the president's executive action takes effect: December 2015 is the target implementation date. The overall plan includes quite a few other ideas that will make a difference to student loan borrowers, like improving financial incentives for federal student loan servicers to help borrowers stay out of default, making it easier for active-duty military to receive benefits and increasing communication partnerships with entities such as the IRS and tax companies to ensure consumers are aware of their higher education rights and benefits.

What do you think of the president's attempt to ease the financial burden associated with student loans? Let us know your thoughts in the comments section. And for more information on federal funding, visit our Financial Aid section.

And remember, there’s no need to rely on expensive student loan options to pay for your college education. For more information on finding free scholarship money for college, conduct a Scholarships.com free college scholarship search today, then apply and win! It’s that easy!

Discuss

Share your thoughts and perhaps thousands of students will benefit from your unique insight on the subject!



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Michael A.  on  5/27/2015 12:00:19 AM commented:

Education, vetted and effective, is our nation's clear and present FIRST priority. Anything to the contrary is romantic drivel or worse, the product of a tainted and selfish (read: short-sighted) agenda.

Danita M  on  8/19/2014 6:58:44 PM commented:

I can recall hearing the president say that he had finally finished paying off his student loans; I think he said that in his second year in office. Therefore, I think he of all people understands the financial challenges student loans can cause. I applaud his efforts to try to ease the burden on future graduates. Elizabeth Warren is such a trooper fighting for better interest rates for us as well. I understand that she is also trying to stop allowing jobs to judge candidates based on their credit ratings as well. Why should a person be denied a job because they have poor credit. I am sure that the economy caused many people to inherit bad credit. That sounds like a way to keep a man down if you ask me. Way to go Elizabeth Warren and President Obama, thanks for looking out for us!

Valerie P  on  8/19/2014 6:52:13 PM commented:

In the same way that Lyndon Johnson and the Democrats created an enormous 'dependent class' through welfare reforms that now vote for the politicians that will keep those handouts coming, the Democrats now want to ensure that they will keep the college crowd voting them back into office term after term by keeping them beholden to the federal government through student loan repayments that are subsidized by the taxpayer. If the government would just get out of the student loan business altogether, the price of higher education would plummet. Why can't folks see this principle?

Toni K P  on  8/19/2014 4:54:29 PM commented:

I am a 2011 graduate with a $25,000. student loan. I have received Social Security disability since 2007 and believe there should be consideration on the front side of FAFSA. Obama is at least making a huge step for not just the young student but also for us older folks. I graduated at age 62 !

Darrian P  on  8/19/2014 4:39:29 PM commented:

Thank you Obama for trying. You are attempting to tackle alot of issues before the end of your presidency and I appreciate everything you do in attempt to improve our country.

Nicholas M  on  8/19/2014 3:49:53 PM commented:

While my family does not support socialism or programs that burden citizens to pay an ever increasing amount of their earnings in taxes, it would be nice if our taxes were diverted from supporting unnecessary wars to instead using those funds to make secondary education free for all citizens like some other countries do.

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