Last Updated Oct 27, 2011 7:38 AM EDT
The change, accomplished by executive authority alone (thanks again for being useless, Congress), will expand an existing program that lets grads "pay as you earn." Previously, the 450,000 borrowers enrolled in the program had to pay 15 percent of their disposable income for 25 years before having whatever remained of their debt forgiven. From 2014, they will pay 10 percent for 20 years.
The President also announced a plan to let the 5.8 million borrowers who have a Federal Family Education Loan and a direct loan from the government consolidate these into one. The interest rate of the consolidated loan would be up to a half percentage point less than what they were paying before.
This approach of "pay as you earn" may be fairly new in the States but it's well established across the pond in the U.K. which has linked the amount of student loan repayments to a graduate's salary, allowing anyone making less than GBP 15,000 ($23,982 according to current exchange rates) to pay nothing at all.
So, will the new program help you? Business Insider has put together a handy FAQ to help you figure it out, though the basic idea is that the changes will be the most help to grads with low-paying jobs and those who are not in such desperate straits as to need immediate relief. Mark Kantrowitz, who publishes the financial aid websites Fastweb.com and Finaid.org told the Huffington Post:
It's a step in the right direction, but a lot of people who need the relief right now won't be the ones who benefit. This plan doesn't do anything for a majority of distressed borrowers. It only helps those still in school.But for some, the changes can offer some serious relief. For example, the White House fact sheet accompanying the announcement shows that a nurse making $45,000 with $60,000 in federal student loans will see her monthly payment go from $690 to $239 if she takes a advantage of the revised program-- a significant sum.
Of course, getting this relief depends on those who are eligible actually enrolling in the program. With financial aid seeming like a byzantine maze of acronyms and providers to many, uptake of the old pay as you earn program was lower than anticipated, so it remains to be seen how many grads actually sign up to the new version. If you're struggling though, don't be put off finding out your eligibility by the complications. Big savings could be available.
Read More on BNET:
- Student Loan Defaults Up Despite New Repayment Options
- A College Degree Is No Guarantee Against Bankruptcy
- 5 Colleges With the Best ROI