For many recent college graduates, monthly student loan payments can be overwhelming. The good news is that a measure of relief is on the way for more than a million borrowers. The Obama Administration recently announced changes that will allow many borrowers to take advantage of a new repayment plan that could lower their monthly federal student loan bills.
The plan, known as Pay As You Earn, caps monthly payments for many recent graduates at an amount that is affordable based on their income. That helps borrowers to stay on track to repay their loan and avoid default.
The Pay As You Earn plan, which President Obama first announced in October 2011, caps payments for Federal Direct Student Loans at 10 percent of discretionary income for eligible borrowers.
As many as 1.6 million Direct Loan borrowers could reduce their monthly payments under the new Pay as You Earn plan. The new option complements additional repayment plans offered by ED to help borrowers manage their debt, including Income-Based Repayment, which caps monthly loan payments at 15 percent of a borrower’s discretionary income. Borrowers who are not eligible for Pay As You Earn may still qualify for Income-Based Repayment, which more than 1.3 million borrowers already use.
To learn more about Pay As You Earn, and to see if it’s right for you and if you qualify, please visit studentaid.gov/payasyouearn.