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Obama seeks to expand student loan program

By Nick Anderson
Washington Post Staff Writer
Monday, January 25, 2010; 2:55 PM

The Obama administration on Monday proposed expanding a popular program that caps monthly student loan payments for college graduates with low or moderate incomes, an effort to ease the debt burden for many young adults in a rocky job market.

Under the proposal, monthly payments on federal loans would be limited to 10 percent of discretionary income -- above a "basic living allowance" -- for qualified borrowers. That would be lower than the current cap of 15 percent in the income-based repayment program that began last summer. In addition, the administration said, certain borrowers could be eligible for loan forgiveness after 10 years in public service or 20 years in other fields of work.

The proposal, part of a package aimed at helping the middle class, would require approval from the Democratic-controlled Congress. The administration estimated the repayment proposal would cost, at most, $400 million to $500 million over five years.

There was no immediate information on exactly how many borrowers would benefit.

A White House fact sheet indicated that the monthly payment for a single borrower earning $30,000 a year who owes $20,000 in loans would be $115 a month under the proposal, compared with $228 a month under a standard 10-year repayment plan.

"This will be a great relief to the millions of students suffering increasing debt levels," said Rich Williams of the U.S. Public Interest Research Group, which advocates increased student aid.

The income-based repayment program took effect July 1 under a law enacted in 2007. Eligibility is based on a formula that takes into account income and family size, according to an Education Department Web site. Discretionary income is defined as any adjusted gross income beyond a level set at 150 percent of the federal poverty line. The law also includes provisions for public service loan forgiveness.

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