Published on 2012/11/02

Measure Enacted Designed to Lighten Load on Student Borrowers

On Thursday, the Department of Education formally established the Obama administration’s “Pay as You Earn” repayment program, which is based on a graduate’s income and could help many student-loan borrowers.

The last time the income-based repayment model was revisited in 2010, when it was decided that borrowers would pay 10 percent of their discretionary income toward their loan per month and obtain loan forgiveness after 20 years of payment. This was an improvement on the previous model, which demanded 15 percent of income be repaid for a maximum of 25 years.

The new program will be applicable to students who borrowed new loans after October 1, 2007 and who also took out a loan on or after October 1, 2011.

Making student loans more affordable was a major element of President Obama’s 2008 election campaign and a few steps have been taken towards achieving that goal during his presidency, including developing an online tool through the Department of Education allowing borrowers to automatically enter their tax data into an application to earn entrance into the income-based repayment scheme.

One major critique of the Pay as You Earn scheme came from the New America Foundation, who released a report in October slamming the program as beneficial mostly for high-income borrowers who could have large amounts of debt forgiven. Furthermore, they said, since students would be able to borrow more money with less thought granted to the repayment of loans, institutions had no impetus to decrease their tuition rates.

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