Did you know that the amount of outstanding student debt in the US increases each year?
In an effort to help with the ever-increasing weight of this debt, a new income assistance payback program for federal education loans, named Pay as you Earn, started on December 12, 2012.
This new program has the potential to benefit many individuals with outstanding education loans because it offers more favorable monthly payments than prior income related payback programs, as well as a shorter length of time before an individual is eligible for loan forgiveness.
Pay as you Earn repayment plan
It’s important to understand the details behind the plan before electing to choose it.
What is it?
- New income assistance payback program for certain direct federal student loans
- Monthly payments capped at 10% of discretionary income
- Payment amount based on family size and annual income
- Payment amount reevaluated annually
- Loan forgiveness after 20 years
- All payments must have been paid on time and in full
- Only 10 years for full-time teachers, public service workers and nonprofit employees
Who qualifies?
- Individuals with partial financial hardship based on the amount they would have to pay monthly under a 10 year Standard Repayment Plan
- Qualifying Direct Loans taken out after October 1, 2007 that received at least one disbursement after October of 2011
- Eligible loans
- Direct Subsidized and Unsubsidized Loans
- Direct PLUS loans made to students
- Direct Consolidation Loans that do not include PLUS loans made to parents
How it works
- Apply online through StudentLoans.gov
- Make payments on time and in full
- Submit documentation annually of income and family size to have monthly payment adjusted
- Have remaining loan balance forgiven after 20 years of qualifying loan payments
- To learn more, contact your financial advisor or visit the Federal Student Aid website
Photo credit: lumaxart
