The Obama Student Loan Forgiveness is a nickname for the William D. Ford Direct Loan program which came about when former President Obama signed the Health Care and Education Reconciliation Act of 2010.
It’s important to keep in mind that this is the program offered for Federal Student Loans. State and private loans do not qualify for loan forgiveness or loan consolidation programs.
The Major changes under the Health Care and Education Reconciliation Act of 2010 are as follows:
- The Federal government will no longer subsidize private lending institutions for federally backed loans.
- Starting in 2014, borrowers of new loans will qualify to make payments based on 10% of their discretionary income.
- Any new borrower is eligible for student loan forgiveness after 20 years instead of the prior 25 years on all qualifying payments.
The primary approach for many will be loan consolidation.
In addition to Loan Consolidation there are the following additional approaches:
Student Loan Interest Forgiveness
Under the Obama Student Loan Forgiveness program, interest under the Income Based Reduction Plan is not calculated on the subsidized portion of your Direct Loan.
This applies only for the first three years of your Income Based Reduction Payment, and only if your payment is less than what is normally due in principal and interest.
This could amount to thousands of dollars depending on your loan balance and what type of payment you currently qualify for.
Example: A student owes $40,000 in subsidized loans. The term is 25 years. The interest on this loan would normally be $229.17 per month, but the borrower would qualify for a payment of $93.69.
Over the three year period they would be forgiven $4,877.28.
Student Loan Forgiveness at the End of the Term
If you enroll in the Income Based or Pay as You Earn plans, your loan balance would be forgiven at the end of the term if you still have a remaining balance.
The term of the loan is 20-25 years depending on which repayment plan is chosen and when the loan was originated.
How much is forgiven will depend on your original loan amount, your current earnings and how much your earnings fluctuate during your repayment term.
Example: Borrower owes $40,000 in federal student loans. The term is 25 years in the Income Based Repayment Plan.
The borrower would qualify for a payment of $97.31, and would make these payments for 25 years or 300 payments.
The total amount the borrower would pay on this loan is 300 x $97.31 = $29,193 of the original $40,000 that was borrowed. This person would have $10,807 in student loan forgiveness.
Public Service Student Loan Forgiveness
Payments that are made in the Direct Loan program as a repayment count as qualifying payments for those who work in the public sector and would like to apply for public service student loan forgiveness.
In the public service loan forgiveness program, you may qualify for forgiveness after 10 years or 120 payments instead of the standard 20-25-year forgiveness loan program.
Check out the US Department of Education for information on student loan debt relief for public service employees.
Teacher & Disability Student Loan Forgiveness
These are separate programs that exist specifically to help teachers by offering principal reduction, or the disabled by offering a complete discharge on your federal student loans.
The US Department of Education is a great resource information on Teacher student loan forgiveness and Disability student loan forgiveness.
President Trump has some ideas on this critical problem, and they could soon be enacted into law.
- Freeze rates at their current low level independent of any increase in interest rates by the Federal Reserve.
- Any student with an associate degree or higher and $10,000 in student loans will be eligible for the Work Opportunity Tax Credit.
- Employers who implement a repayment-match program to be eligible for an annual tax credit.
No matter what happens to any Federal Law changes, it is critical to apply for the student loan forgiveness/reduction plan now.
Waiting will not make things better in the long run and in virtually all cases, once you are in a program you are locked in with the current favorable conditions.
If changes in law do come about, in many cases you can redo your loan.
There are many places to go get started, and of course there are many sites that propose doing the work for you for a fee. DO NOT pay any fees to apply for student loan forgiveness.
There is no need to and NO guarantees as to what you will receive can be given.
The Federal Trade Commission's website is the best resource to begin the process of obtaining student loan debt relief.