Hi Frugalistas! We at TheFrugalista.com have taken up student loans as a pet project, interviewing top experts and personal finance journalists on the subject and holding a Twitter #dealchat on the topic. Today, President Obama is announcing some changes to some repayment programs, aimed at easing the pain of paying off student loans.
From The Washington Post:
Under current law, former students are allowed to cap repayments of federal loans at 15 percent of discretionary income. Last year, Congress approved legislation that would reduce the amount to 10 percent in 2014.
Obama is using his executive authority to create a separate provision that would offer the same program in 2012, said Melody Barnes, Obama’s domestic policy adviser.
How would that work out in your pocket? These are the examples that the Obama administration gave :
o A nurse who is earning $45,000 and has $60,000 in federal student loans. Under the standard repayment plan, this borrower’s monthly repayment amount is $690. The currently available IBR plan would reduce this borrower’s payment by $332 to $358. President Obama’s ‘Pay As You Earn’ plan will reduce her payment by an additional $119 to a more manageable $239 — a total reduction of $451 a month.
o A teacher who is earning $30,000 a year and has $25,000 in Federal student loans. Under the standard repayment plan, this borrower’s monthly repayment amount is $287 . The currently available IBR plan would reduce this borrower’s payment by $116, to $171. Under the improved ‘Pay As You Earn’ plan, his monthly payment amount would be even more manageable at only $114. And, if this borrower remained a teacher or was employed in another public service occupation, he would be eligible for forgiveness under the Public Service Loan Forgiveness Program after 10 years of payments.
What do you think? Do you think this income sensitive proposal is a good idea? Do you ever have trouble paying back student loans? What have you done to pay off your student loans? Have you taken a second job?