Benefits Of The William D. Ford Student Loan Forgiveness Program
With student loan figures going higher, debt-saddled graduates and students are desperate for strategies that can help them escape from their burden. The latest upturn in events is a possibility that federal loans may be forgiven. This possibility of loan forgiveness is as a result of the Obama student loan relief program. The Obama student loan relief program came into existence when President Obama reformed part of the Direct Loan program by passing the Health Care and Education Reconciliation Act of 2010. Note that the program is provided for only federal student loans.
What are The Pros of The Student Loan Forgiveness Program?
There are a lot of benefits in this program that the loaned can take advantage of. The program gives borrowers the ability to consolidate their federal student loans to one new loan. In that consolidated loan a borrower can pick any repayment plan that he/she deems affordable.
The student loan relief program offers each repayment plan stated below
1. Standard Repayment
The borrower is allowed to pay a fix sum each month through the duration of the loan. The payment is to be determined by the amount borrowed, interest rate, and terms of the loan.
2. Graduated Repayment
The borrower is allowed to make payments that are lower than that of the standard repayment plan, which would gradually rise every two years.
3. Income Contingent(ICR)
This plan allows a borrower to make payments based on his/her income, loan balance, family size, and interest rate.
4. Income Based(IBR)
This plan allows borrowers to make payments strictly on their family size and income. The interest rate and balance of the loan are not used when calculating the monthly payment. A borrower is responsible to pay an average of 15% of their income to their student loans.
5. Pay As you Earn
This plan typically has the least monthly payment. It is based on the borrower's income but involves using 10% of your income as payment. Qualifying for this payment plan is much difficult compared to others.
In the student loan relief program, interest in the income based payment plan doesn't capitalize on the subsidized part of the loan. This principle can only apply in the first three years IBR payment, and if the payment is below what is due normally in interest. Depending on your loan balance and the kind of payment you qualify for, this sum can run into thousands of dollars.
Student Loan Forgiveness At The End Of The Term
If a borrower eventually enrolls into either the Income Based, Income Contingent, or Pay As you Earn plans, his/her loan balance would be discharged at the climax of the term if there is still a balance remaining. The terms of the loan could fall between 20 to 25 years depending on the payment plan the borrower chooses, and when the loans were borrowed originally. How much a borrower will be forgiven would depend on his/her original loan sum, and how much he/she is earning. It will also depend on how much of the borrower's earnings fluctuate during the repayment term.