But what exactly does that mean? And how will this help the average student?
The best explanation I have seen so far is from Michelle Singletary, a personal finance columnist at the Post. She writes that this isn’t a brand new program — it’s an expansion of the existing Income Based Repayment program. She writes:
“That program allows borrowers with federal student loans — a key piece of information that is being left out of many reports — to have their monthly payments set to a reasonable amount based on their income and family size. Monthly payments can be capped at 15 percent of borrowers’ discretionary income. After 25 years of qualifying payments, the remaining debt, including interest, is forgiven.”
Under federal law, that cap is set to be lowered in 2014 to 10 percent and debt will then be forgiven after 20 years. Obama plans to use his executive authority to accelerate that change, extending the benefits to borrowers who took out student loans in 2008 and later.
The change could reduce monthly payments for as many as 1.6 million borrowers. But right now, only 450,000 of the nation’s 36 million student loan borrowers are participating in the repayment program, the Post reported. (And, keep in mind, this new plan will not help anyone who took out loans before 2008 or those over their heads in private student loan debt.
The announcement sparked a lot of discussion on Twitter, often with the hashtag #studentloans. Here’s what some people are saying:
What do you think of this new plan? Are you one of the borrowers who will benefit? How so? And if not, what would help you?