New Student Loan Repayment Option to Help Recent Graduates

Graduation CapsFor 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.

16 Comments

  1. I started out oweing 22k and now 18k 3 yrs later I’m a Lpn I’d like to go back for my RN but that means more debt so what or how will these new changes help?

  2. Why should anybody pay the standard loan in 10 years instead of paying less and having it forgiven in 20 or 25?

    Does it look better on my credit if I pay it in 10 ?

  3. I just wanted to make a point. The changes implemented by President Obama are well needed for students that have high student loan debt. Pay as you go is a sensible plan that will work. However, students should research the possible effects that this could have on their credit. Does anyone know if this will negatively effect a students credit score?

    If you join a consumer credit counseling program that helps to manage credit card debt, there is a third party notation that is reported to the credit bureaus.

    I wonder if this pay as you go plan has any type of similar negativity attached to it.

    If it does negatively effect your credit, then students should stay away from this plan.

    • The repayment plan that you select is not reported to credit bureaus and has no effect on your credit score. However, your loan will be identified on your credit report as a student loan, and your loan holder will report the status of your loan account (e.g., whether you are repaying on time or are delinquent or in default) to credit reporting organizations. Failure to repay your student loans on time may negatively affect your credit score.

      Cameron Brenchley
      Office of Communications and Outreach

  4. Income based repayment would not be necessary if the following were implemented to reduce indebtedness and ensure on time completion:

    1) No loan deferments for half time attendance and no refunds, i.e. “living expense” allowances for half time or fully online enrollments. Want the convenience of taking night, weekend or fully online courses? Fine, just no refunds unless you are truly full time and unable to work due to the time demands. Outside, “indirect” expenses have nothing to do with nighttime, weekend or online enrollment (they are not education related). Need to go at a slower pace due to work or other obligations? Fine, but you must make payments (at least interest payments) while enrolled since you are able to work full time. Can’t make payments due to unemployment? Then go full time and get it done sooner. No more getting your cake and eating it too. In addition to lowering indebtedness, this would weed out many of the “career” students seeking to perpetually delay repaying their loans and living on their financial aid.

    2) Require 6-9 months of consecutive payments at designated checkpoints. It could be after a length of time, e.g. after four years of borrowing, or after dollar amounts, e.g. after each $30,000 borrowed. Can’t make payments due to hardship or unemployment? Fine, use forbearance, but you cannot borrow more until you demonstrate ability to start repaying. If these were the terms from the outset, the student would know exactly when they need to have their act together.

    The current system allows you to go far too long and borrow far too much without any means testing. If you have more undergraduate debt than you can handle (e.g. $60K) you can enter 5 years of forbearances and deferments then go straight into a master’s program and borrow another $100K to attend part time for several more years, without making a single payment. You can go decades and from one degree to the next without touching your loan principle whether the end result allows you to fully repay your loans or not. This unfettered lending and borrowing makes no sense. Income based repayment encourages more borrowing and prolongs enrollment further. It provides no incentive to either finish on time or repay loans early.

  5. EdManage is the absolute worst loan servicer/ (or company in general) it has ever been my misfortune to have to deal with. They consistently, and I mean every single time, ruin payment processes and then do not correct them or give you any information on how to. No matter how much you call, they put you on hold for at least one hour at a time, and then just tell you to call back in a few weeks, while continuing to not solve any problems.Why is this company still operating? Please help! What can be done about this? NO one has the time, money, or energy for this !

    • Agreed!!! EdManage is the worst servicer ever. I have tried to get on the website for months and it has only allowed me to log on 2-3 times out of hundreds of attempts. I have to call and wait an hour to speak to someone who says they are aware of the problem but nothing has been done to fix it. I cannot even reset a password without getting server errors. I recently submitted an online payment that never processed. I have student loans with other servicers and have never had one problem. This is the second time they have not processed a payment properly. I just want to pay for my loans without spending hours of time to do it. I am considering consolidating just to get rid of EdManage as a servicer. EdManage is not equipped to service federal loans.

    • Doubly agreed. They are beyond horrible. I’ve had other loan servicers for years and never had the ridiculous issues that happen with EdManage. They are WOEFULLY ill-equipped to deal with servicing loans. When they make a mistake, you have to call them, and you sit on hold for an hour or more. They say you can “keep your place in queue and have us call you back” by pressing 1, but that doesn’t work either. They never call back. Just today I was sitting on the line and finally got to the front, only to have the CSR HANG UP on me.

      I need my tax info that they NEVER sent, but can’t log on to my account and can’t get them on the line to unlock my account (which locks me out EVERY time, even using my exact password, or trying the “forgot password” bs). What now? I should FAX them? I can’t email because I am only allowed to do that from my online account. That the site never lets me into.

      Who do we complain to? We can’t even contact them or have them fix mistakes. This is ridiculous. HOW did the US of Education EVER let these guys get a contract??

  6. In a strange case like this :
    A 60 years old student who attended a private university where he was taking ministry and if not the ministry itself he’d not even dream about going to school due to age, that student got removed from the ministry program for having failed twice a same class; the school refused to allow that student to continue even when he promise he will take the situation more seriously. That student was about to graduate in only 4 months. He got only 8 classes left which he would take within 2 semesters.
    Now my question is: who should repay for the cost?
    The school of course should know that at that age things would not be as easy as it is for a young adult. As ministry is a faithful area, it won’t be easy for that old person to be able to repay unless the possibility was present even prior to the beginning.
    What can you say about that terrible situation?

  7. When Direct Loans sold my loan to EdManage a $250.00 payment I made on November 1, 2012 (cleared bank) HAS NEVER been applied to my loan. Two months plus and still not been applied. I have called many times still not applied and no documentaiton will be sent to me explaining when it will be applied. The US Department of Education has my $250.00 dollars and I would like a refund plus interest.

  8. Do parents who had to take out PLUS loans to help their children through college qualify for this repayment option?

  9. Is the loans still bearing interest during thsi cap? What percentage of monthly payment is going towards the principle and what towards interest? Repayment options are not helpful if the majority of the repayment amount is only applied towards interest….

    • @Deb With Pay as You Earn, interest on your student loans will accumulate as it usually would. So, the amount of a payment that goes to interest and principal will still be determined by the balance and interest rate on the loan. In addition, you have a 20-year repayment period, which is longer than the 10-year standard repayment plan. So, a reduced monthly payment under Pay As You Earn (that can be less than accruing interest) and an extended repayment period means you’ll be repaying your loan for a longer period of time, and paying more total interest over the life of the loan (unless you receive Public Service Loan Forgiveness).

      However, Pay as you Earn includes two interest benefits for those whose payments do not cover all accruing interest. First, if you have subsidized loans, the difference between your payment and the amount of interest that accrues on such loans will be paid by the Department of Education for up to three years. Second, interest is not capitalized under the Pay As You Earn Plan unless you: (1) are no longer making payments based on income (lose partial financial hardship) or (2) leave the plan entirely. Even if interest capitalizes under the Pay As You Earn Plan, the amount that capitalizes is limited to 10% of the balance of your loans.

      Here is some information to help you compare the advantages and disadvantages of Pay as You Earn: StudentAid.gov/payasyouearn. If you are interested in Public Service Loan Forgiveness, you can find more information here: StudentAid.gov/publicservice. Talk to your loan servicer for information specific to your situation.

      Cameron Brenchley
      Office of Communications and Outreach

  10. Talofa from American Samoa;
    I am a concerned graduate of 1998 from Missouri Valley College, Marshall MO, residing in American Samoa. I started teaching at Tafuna High School from 1998 until today and is indeed very much in need of assistance to help with my student loan. I have participated in various workshops in our nation’s capitol through the Close Up Program, Teacher’s Training in Honolulu, HI, 2012: Transforming America, Hawaii and the Pacific workshop at Pearl Harbor and Tokai University, and my hometown in American Samoa. From a low paying territory and is entitled to Article I, I have requested for a Loan Forgiveness from Sallie Mae and hopefully it will get approved. Therefore, I humbly request the US DOE for assistance in this matter if all possible. Thank You and Sofua. In other words, Mahalo and God Bless.

    • Thanks for your comment. While the Department of Education won’t intervene while your loan provider is reviewing your request, if you need additional assistance with resolving disputes, please visit the FSA Ombudsman website.

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