Managing Finances

Understanding the Student Loan Debt Relief Program

By Suzanne Shaffer

President Obama recently expanded an income-based repayment program offering additional help to millions of Americans coping with high federal student loan debt. Some experts believe this program provide welcome relief for many students but others feel the repayment program will leave many borrowers still unable to pay back their loans.

Student loan debt has topped $1 trillion, with an average of $33,400 for a bachelor’s degree recipient. Money Magazine, writing of the Pay As You Earn repayment program, stated, “With federal and state support of post-secondary education dwindling, students and their families are footing a bigger portion of college bills. As a result, 29% of young American adults, ages 22 to 33, say their biggest concern after covering day-to-day bills is paying off student loans.”

What is the Pay As You Earn Repayment Program?

The program limits borrowers’ monthly student loan payments to 10 percent of their discretionary income. Under the program, loans will be forgiven after 20 years of payments even if there is still a balance—10 years if the borrower works in public service for the government or for a nonprofit organization.

Who is eligible?

To qualify, you must have a partial financial hardship. This means your standard repayment plan under a 10 year program is higher than the monthly amount you would be required to repay under Pay As You Earn. Eligible loans include all of the William D. Ford Federal Direct Loans, as well as certain types of Federal Family Education Loans. Parent PLUS loans and private student loans are not eligible for these income-based options. In addition, borrowers with huge debt loans can be shut out if their incomes are considered to be too high.

Prior to the executive order which extended the program to 5 million more borrowers, the option was only available to new borrowers as of October 1, 2007 receiving a disbursement of a loan on or after October 1, 2011. An expansion to borrowers with older loans is expected by the end of 2015.

How does a student apply for this program?

A student can start by logging in with your PIN on the Federal Student Aid website to determine whether or not your loan qualifies you for the program. If you qualify, you can complete the necessary documentation and submit your application. The site recommends that you contact your loan servicer before you apply to answer any additional questions you might have about the program.

Will the program solve the student loan debt problem?

NprEd points out that current enrollment in the program is only 1.6 million when 37 million Americans are carrying student debt. They cite ignorance about the program and difficulty with the lenders who service their loans tying students up in red tape. Quite simply, those who are eligible for this program either aren’t asking for it or give up when the process becomes too difficult.

Ideally, every student wishes to graduate without student loan debt. Realistically, with today’s rising tuition costs, it is more and more difficult to achieve that goal. It makes sense, however, for students to follow these simple guidelines when applying and managing student loans:

  • Understand the types of loans being offered and your obligations after graduation
  • Understand your repayment options before you borrow
  • Be realistic about your earning potential after graduation
  • Only borrow what you can afford
  • Avoid private student loans if possible
  • Communicate with your lenders if you are experiencing financial difficulties after graduation.

Students who simply sign on the dotted line and assume they will make enough money to repay their student loans are often caught off guard when their first payment comes due and they either haven’t found a job after graduation or the job they secure doesn’t pay enough to make high student loan payments.

Suzanne Shaffer counsels parents and students in the college admission process and the importance of early college preparation. Her blog, Parents Countdown to College Coach, offers timely tips for parents and students, and provides parents with resources to help their college-bound teens navigate the college maze. She is a regular contributor as a college expert on, iGrad, Galtime, Unigo Expert Network, Student Advisor, and College Money Insider.

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