The biggest news of the president’s plan is that some borrowers will be able to cap their monthly loan repayments at 10 percent of their discretionary income as early as next year. (Current law allows a 15 percent cap and will lower that to 10 percent in 2014.)
An estimated 1.6 million borrowers will be eligible to lower their payments next year under this plan. Students who had a loan in both 2012 and sometime between 2008 and 2011 will qualify, an Education Department spokesman says.
An example offered by the Obama administration is a nurse earning $45,000 a year with $60,000 in federal student loans. Under the current income-based repayment (IBR) plan, he or she would pay $358 a month, but under the new plan announced by Obama, payments would be reduced further, to $239.
Borrowers should be aware that the length of their payment period may increase if they opt for the lower monthly payment.
“IBR has already helped nearly half a million borrowers lower their payments and avoid default, but many more borrowers are struggling to keep up .... With these changes on the way, it’s more important than ever to make sure that the millions of borrowers who could benefit from IBR know it’s out there,” said Lauren Asher, president of The Institute for College Access & Success (TICAS), which helped develop the original IBR policy proposal.