12/15/2014
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Pay As You Earn Student Loan Repayment Plan
President Barack Obama first announced this plan in Oct. 2011 and it has become synonymous with the ‘Obama Student Loan Plan.’ This repayment plan, based on your monthly discretionary income, stems from a campaign promise Obama made as he courted young voters, telling them he would provide relief on their student loan payments and help better manage their debt.
He unveiled the plan at Colorado University, telling students about his own personal struggle, paying off $120,000 in student loans when he and First Lady Michelle Obama married. The repayment plan became effective on Dec. 21, 2012.
If you are facing a partial financial hardship, this plan offers you the lowest monthly payment amount of the repayment plans based on your income, family size and state of residency. Monthly payments under the Pay As You Earn Plan are capped at 10 percent of your discretionary income.
Once you qualify, you can continue to make payments under the plan even if your hardship no longer applies. An additional benefit of Obama’s Pay As You Earn Plan is that the remaining balance on your loan can be forgiven after 10 or 20 years, depending on certain qualifications. The forgiven amount may be taxed.
The Pay As You Earn Plan is one of the flexible repayment options available when you consolidate your student loans. If your payments increase significantly, you can switch only to the Standard Plan to complete the principal payoff of your consolidated loan.
The Department of Education estimates that 1.6 million Direct Loan borrowers will be able to lower their payments, putting a dent in student debt, by using the new plan.
