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Student Loan Forgiveness: Obama Proposes New Federal Student Loan Repayment Plan

Several college graduates are being crushed by their student loan debt. It cannot be denied that the student loan default today are mounting toward new accounts. Because of this situation, several college loan borrowers are seeking for debt relief. In order to help those who have loaned repay their college debts, President Obama proposed quicker government-backed loan consolidation and loan forgiveness plans, which also in turn surge the American economy.

The decision of President Obama to expand the education loan forgiveness to a bigger number of students could mean that loans you received to pay for college may get much easier to manage. Those who are interested to learn more about the details of Obama’s new “Pay As You Earn” program should stay updated as they are still currently emerging.

The new plan’s key objective is a loan consolidation that has a lower interest rate. There are three major features of the plan that will benefit college graduates who are striving to pay their monthly education loan payment:

First is the interest rate.

In terms of the interest rate, there will be a fixed rate in the plan and it will not go higher than 8.25 percent. With a lesser interest rate, students are able to pay more of the monthly payment resulting to more decrease in the principal balance.

The second major feature is the repayment term.

As detailed in the plan, each loan that would be consolidated will be able to maintain the original repayment term that it follows.

The Electronic Debit Payment Benefit

For those who will apply for the new consolidation plan is entitled to an additional 0.25 percent interest rate reduction if their loan is repaid via the Department of Education’s automatic debit system.

The government is looking into allowing people who both hold private and government students loans to consolidate their debts into one new government loan. By doing so, they will be able to receive a reduction at their interest rates and even save money in the process.
College graduates must remember though that they are still responsible at making payments on their loans, however, those revised payments would be bound at just 10 percent of their earnings.

The best thing is that for those who borrowed money for college education will have their loans forgiven after 20 years.

It is still not clearly known how many students will the new plan be able to help but it may range from 450,000 to 6 million students.

When Congress submitted the Income-Based Repayment Plan (IBRP) in 2010, there was a long waiting time before it was approved. The new terms has been effective since January 2012.

It’s notable that low-income borrowers would benefit the most with the plan.