The Obama Administration announced it will accelerate changes in the federal loan program to make it easier for certain students to repay their loans.
Students enrolled in the Income Based Repayment Plan will have their payments capped at 10 percent of discretionary income starting next year, and any remaining balance after 20 years will be forgiven. The Income Based Repayment Plan has been available since 2009 and has limited monthly payments to 15 percent of discretionary income with remaining debt is forgiven after 25 years.
Next year’s changes were scheduled to take effect in 2014, but the White House noted that borrowers needed help now.
The Income Based Repayment Plan is designed for borrowers with steep debt in relation to their income.
Additionally, borrowers may have some loans made directly from the government as well as some federal loans made through private lenders. The administration says it will allow borrowers to consolidate their federal loans from both programs next year which will make it easier for them to keep track of their payments. If they do so, they will be entitled to an interest rate reduction of up to 0.5 percent on some loans. Loans servicers are supposed to contact students eligible for consolidation early next year.