Note: Access the Education Departments’s PAYER plan here.
Today, millions of Americans may be worried about the significant student loan debts they carry, but the U.S. Department of Education is making it easier for many to begin paying into those balances.
Late last month, the Education Department unveiled a new payment plan designed to help more former college students meet their financial obligations in paying down their debts. The new option, known as “pay as you earn,” (a.k.a, PAYER) is a capped income-based repayment plan that only requires debtors to pay back 10 percent of their annual discretionary income every year. If the borrower is in good standing and has made this type of payment for 20 years, the remaining balance on their debt is forgiven.
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Prior to the implementation of this new payment plan, borrowers with student loan debts were required to pay 15 percent of their discretionary income, the report said. Further, the remaining balance on that debt could only be cleared after 25 years of repayments.
However, not all consumers will qualify for this deal, and currently only about 1.3 million people across the country are taking advantage of the previously-existing income-based repayment plans, the report said. To qualify for the new deals, loans could not have been issued before October 1, 2007, and the borrower must have received a disbursement since October 1, 2011.
In addition, only federal direct loans qualify for this repayment option, and federal family education loans do not, the report said. And the borrower must be experiencing some sort of “partial economic hardship” based on their income, debt load, family size and more.
Those who support the new deal say this will help many Americans in some sort of financial difficulties from defaulting on their education loans and allow the government to collect more money, the report said. Current data shows that about 13 percent of borrowers default on their student loans within three years of graduation.
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The average college student now graduates with tens of thousands of dollars in education loan debts, and that’s in addition to other outstanding balances they may have in their names, such as credit card bills, auto loans, and more. All these factors can put a significant damper on a recent graduate’s ability gain financial independence.
Image: gadgetdude, via Flickr