The Obama administration proposed a new income-based repayment program for federal student loans that will be available to all borrowers, Josh Mitchell reports for the Wall Street Journal.
The Education Department's Pay As Your Earn (PAYE) program currently caps a borrower's payments at 10% of his or her monthly discretionary income, which is defined as earnings above 150% of the poverty line. Enrolling in PAYE can often save borrowers hundreds of dollars month, Mitchell writes. However, those who took out loans prior to 2008 are restricted to an overall payment cap of 15%.
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For students who did not attend graduate school, any remaining balance is forgiven after 20 years of qualifying payments. For those who did, it takes 25 years.
New payment options
Under new rules proposed Thursday, the Obama administration would launch a new program called the Revised Pay As You Earn repayment plan (REPAYE). The new payment option would expand the full benefits of PAYE to all borrowers, regardless of when they originally took out their loans.
Education Secretary Arne Duncan said Tuesday the initiative would provide "targeted benefits to even more borrowers so they can stay current on their loans and furthers our commitment to lifting the burden of crushing student loan debt."
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Federal officials are particularly concerned that defaults on student loans are harming Americans' ability to access credit and hurting the economy overall, Mitchell writes. The government estimates six million more borrowers will become eligible for income-based repayment via REPAYE.
The public has until August 10 to comment on the proposed changes. The program is expected to be finalized this fall (Mitchell, Wall Street Journal, 7/7; Department of Education release, 7/7; Federal Register proposed rule, 7/9).
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