College Planning

We hear it all the time. Current graduates will be held back by the student loans they acquired due to the rising price of college. It makes other post-high school options seem rather appealing. However, it’s important to understand different loan payment options when making that choice.

In response to the high debt rate of recent graduates, President Obama has recently signed an executive order to expand the Federal Pay as You Earn (PAYE) program for federal student loans.

Currently, with the program, borrowers pay 10% of their discretionary income towards their loans each month and all remaining debt is generally forgiven after 20 years of payments (10 years for students in certain public service jobs). However, this program is limited to borrowers who initiated their loans between October 2007 and October 2011.

To expand this program, President Obama has increased the Pay as You Earn offerings to now include those who took out federal loans prior to October 2007 and stopped borrowing by October 2011.

To know if you or your children qualify for this repayment program, here are the four items to understand about the PAYE program.

    • Parent PLUS and private loans are not eligible for this program.
    • Your monthly payment is based on income, family size, and state of residence.
    • Your payment is readjusted each year based on changes to your income, family, and residence location.
    • Most importantly, not every student loan is eligible for PAYE. It requires borrowers to show ‘partial financial hardship.’ This is determined by the annual amount of debt due exceeding 10% of the difference between your adjusted gross income and 150% of the poverty line for your family size in your specific state.

Before writing off college due to debt, or just signing away your life to payments, it’s essential to understand your options. To learn more about this program and obtain other resources, check out: The Department of Education.

What’s your experience with student loans? Did you have any successes or struggles with the process? 

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