OUR THOUGHTS ON:

Pay As You Earn Student Loan Repayment Program

Higher Education|Not-for-Profit

By Michael Stetson

On June 9, 2014, President Obama announced plans to expand the federal government’s most generous income-based student-loan-repayment program to an additional five million borrowers and signed an executive order to expand the Pay as You Earn program to include people who borrowed before October 2007 or who stopped borrowing by October 2011.  The Pay as You Earn program caps borrowers’ monthly payments at 10% of their income and provides loan forgiveness after 20 years.

According to a recent article in the “Chronicle of Higher Education,” there are just over 2.2 million borrowers enrolled in income-based repayment plans out of 17.5 million borrowers in repayment.  Out of the 2.2 million enrolled, only 190,000 are enrolled in the Pay as You Earn plan.  As a result, the Education Department started a campaign to make borrowers aware of their options through e-mail and by working with Intuit and H&R Block to educate income tax filers about their repayment options. 

To be eligible for this program your monthly payments under a 10-year standard repayment plan would have to be higher than the monthly amount you would be required to repay under the Pay as You Earn program.  You would also have to be a new borrower as of October 1, 2007 and have received a disbursement of a Direct Loan on or after October 1, 2011.  Monthly payments under this plan are based on your discretionary income and family size and are adjusted each year, based on changes to your annual discretionary income and family size.  The payments are never more than the 10-year standard repayment amount and are made over a period of 20 years with the remaining debt being forgiven at the end of the 20-year period or a 10-year period if you are a public servant.  Any debt that is forgiven is subject to income tax.

Although the program lowers the monthly payment in most cases, it also increases the amount of interest accumulation over time.  For borrowers who are in a public service position where the debt is forgiven after 10 years, this might not be an issue, but for others in the private sector, the accumulation of interest could lead to paying more for their debt over time.

There are a lot of things to consider when making the decision to enter into one of the several repayment programs offered.  If you have a child or children who are considering this program and would like more information on what your options are, please check out the website https://studentaid.ed.gov or consult with the holder of your loan.

© 2014 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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