The U.S. Department of Education recently announced that, beginning December 21, eligible borrowers of federal student loans will be able to enroll in the "Pay as You Earn" program. This new version of the income-based federal student loan repayment program will allow select students to cap monthly loan payments at 10% of discretionary income and have their loans forgiven after 20 years. Previously, the program capped monthly loan repayments at 15% of discretionary income and offered students loan forgiveness after 25 years.
Originally, the new Pay as You Earn repayment program was scheduled to be implemented by Congress in 2014, but the Obama Administration pushed for it to begin sooner given the number of students it could assist, The Washington Post reports. Currently, an estimated 1.6 million student loan borrowers could take advantage of the program.
However, the federal government's previous Income-Based Repayment program, which began in 2007, was largely unpopular with students, Bloomberg BusinessWeek reports. Although the cost of college continues to rise, only 1.1 million borrowers are enrolled in this program.
Given the better terms of the updated Pay as You Earn initiative, the Obama Administration hopes more degree seekers will take advantage of this opportunity to make higher education more affordable.
In order to qualify for the program, borrowers must have begun taking out federal loans after October 1, 2007 and received at least one disbursement after October 2011. Additionally, students must prove their financial need based on the portion of their income they would have to devote to paying back their loans.