With Iowa students graduating with the fourth highest debt in the county, President Obama announced a series of new initiatives yesterday to help Iowa students pay off their student loans. The new steps will make college more affordable and make it even easier for students to repay their federal student loans.
1. Capping Monthly Payments using “Pay as you Earn”
This would allow borrowers to cap their student loan payments at 10% of discretionary income. For example, a teacher who is earning $30,000 a year and has $25,000 in Federal student loans under the standard repayment plan will have a monthly a repayment of $287. The currently available IBR plan would reduce this borrower’s payment by $116, to $171. Under the improved ‘Pay as you Earn’ plan, his monthly payment amount would be even more manageable at only $114.
Borrowers looking for more information on income-based repayment visit http://studentaid.ed.gov/ibr.
The CFPB also released the Student Debt Repayment Assistant, an online tool that provides borrowers with information on income-based repayment, deferments, alternative payment programs, and much more. The Student Debt Repayment Assistant is available at ConsumerFinance.gov/students/repay
2. Improve Ease of Making Payments and Reduce Default Risk by Consolidating Loans
This would provide a discount on consolidation loans. This special consolidation initiative would keep the terms and conditions of the loans the same, and most importantly, beginning in January 2012, allow borrowers to make only one monthly payment, as opposed to two or more payments. Borrowers who take advantage of this special, limited-time consolidation option would also receive up to a 0.5 percent reduction to their interest rate on some of their loans.
3. Provide Consumers with Better Information to Make College Selection Decisions
The Consumer Financial Protection Bureau and the Department of Education have teamed up to launch a new “Know Before You Owe” project aimed at creating a model financial aid disclosure form, which will make it easier to compare aid packages offered by different institutions.