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Student Loan Forgiveness: Obama Proposes New Federal Student Loan Repayment Plan

Student loan debt nowadays is bringing down a lot of college graduates. The record of student loan defaults nowadays are soaring toward new levels. Because of this situation, several college loan borrowers are seeking for debt relief. This has lead the President of the United States, Barack Obama, to put forward faster government-backed loan consolidation and loan forgiveness plans in order to help borrowers pay back their college debts and even increase the economy of America.

The move of the president, which is expanding education loan forgiveness to more students, will help in making the paying of the loans for college much easier to deal. As of now, the details of the President’s new “Pay As You Earn” program, which lists down the new rules for repayment, are still being developed.

The main focus and objective of the plan is a loan consolidation at a lower interest rate. Looking at the plan, there are three key features that gives college graduates benefits in terms of their monthly educational loan payments.

First is the interest rate.

There will be a fixed rate (not more than 8.25%) after applying the 0.25% interest rate drop to qualifying loans being combined. Lower interest rates is equal to bigger chance of the monthly payment to be paid off.

The second major feature is the repayment term.

For every loan that is consolidated, original repayment term is retained.

The third is the electronic debit payment benefit.

If the applicant of the new consolidation plan pays through the Department of Education’s automatic debit system, he or she is qualified for a supplementary 0.25 percent interest rate reduction.

What the government wants is that those who hold both private and government student loans should be able to consolidate their debts right now into one new government loan. By doing so, they will be able to receive a reduction at their interest rates and even save money in the process.
College graduates should take note though that they are still responsible in making payments on their loans, but those revised payments would be trumped at just 10 percent of their income.

The better news is that for those who loaned tens of thousands of dollars for their college education, their loan will be forgiven after 20 years.

Currently, it is not known how much the new law will aim to help but it is estimated to be at 450,000 to 6 million students.

After the Congress passed the Income-Based Repayment Plan (IBRP) in 2010, there was a long hiatus before it became a reality. The new terms has been effective since January 2012.

Low-income borrowers receive more of the benefits.

Source: http://www.1clickeducation.com/guide/student-debt-understanding-your-options-13.shtml