President Barack Obama has a plan to cut the federal student loan payments of millions of Americans. His plan, which was originally announced on Monday, would lower the top payment that a borrower could make above a specified amount.
The Basics of Obama’s New Proposal
Under Obama’s proposed plan, he would cap payments on federal student loans at 10 percent of a borrower’s income above 150 percent of the poverty level for the borrower’s family.
To better understand this idea, if you are head of a family of four, your federal poverty level would be $22,050. If you make less than 150 percent of this poverty level, which would be $33,075 (the set minimum), you would pay nothing on your students loans on a monthly basis.
However, if you make more than the set minimum then you will pay a monthly student loan amount that equals 10 percent of your income $33,075.
Originally, the same family would have had to pay what equals 15 percent of their income above $33,075.
Will the Reduction Make a Difference?
If you’re wondering whether this adjustment will make a difference, here is an example proposed by Forbes Magazine:
- Under the old plan: If a borrower has an adjusted gross income of $30,000 and owes $40,000 in student loans, he would pay off the debt for $170 (based on 15 percent of his income).
- Under the new plan: If the borrower pays back his loans under the new plan, he would pay back $115 a month (based on 10 percent of his income).
Either plan is more affordable than what the borrower would have to pay without caps, which would be $460 a month over 10 years.
Another adjustment in proposal is that the debt, if not paid off in 20 years – assuming that the borrower has made qualified payments over this time – will be forgiven. This was adjusted from a 25-year period.
How do you feel about the student loan repayment adjustment the president is proposing?