Student Loan Forgiveness & Repayment: Obama’s Plan Helps Reduce the Student Loan Repayment Burden

While many are calling to a government student loan forgiveness program to help college graduates, who a struggling with student loan repayment and are having trouble finding a good job in this economy, the President’s plan offers payment assistance first, and forgiveness much later, and as a last resort.

Under the recently announced plan, repayment of student loans would be capped at 10 percent of the former student’s discretionary income. The aim is to ease the financial burden on the individual while they are just getting started in the job market after graduation.

According to the White House, the plan could help up to an estimated 1.6 million people by reducing their student loan payments by hundreds of dollars each month. At the same time, the plan should enable more individuals to live up to their financial obligations by actually repaying their loans over time.

After 20 years of repayment, at the new 10% cap, the remaining loan debt is forgiven. Under the current plan, there is a 15 percent cap on repayment for a period of 25 years before forgiving the student loan debt.

“Steps like these won’t take the place of the bold action we need from Congress to boost our economy and create jobs, but they will make a difference,” Obama said in a statement.

Because the change to the student loan repayment, known as ‘pay as you earn’, comes as an executive order from the President, the change does not need approval from the Congress. The change will take effect in January at the start of the new year.