Certain borrowers will see some student loan debt relief under the U.S. Department of Education’s new “Pay as You Earn” repayment plan.
Under the new plan, recent graduates’ monthly payments are capped at an amount that is based off of their income.
“We know many recent graduates are worried about repaying their student loans as our economy continues to recover, and now it’s easier than ever for student borrowers to lower monthly payments and stay on track,” U.S. Secretary of Education Arne Duncan said in a recent news release.
The plan, which was first proposed by President Barack Obama in October 2011, will cap Federal Direct Student Loan payments at 10 percent of the borrower’s income.
According to the Department of Education, 1.6 million borrowers could see their monthly payments decrease if they take advantage of the plan.
The “Pay as You Earn” plan is a compliment to other repayment plans the federal government already provides to help borrowers maintain their debt. The current Income-Based Repayment Plan caps monthly loan payments at 15 percent of the borrower’s income and will still be available to those who don’t qualify for the new plan.
“I think it will be a very good plan for some students. There are some situations where the reductions will not be very much for students, but there will still be some students it helps,” said Kirk Yats, director of CMU’s scholarships and financial aid office.
According to the Education Department’s website, “Pay as You Earn” is directed toward borrowers in the teaching, nursing and first responder fields because they are lower-paying public service careers.
“I think (the) income based plan will help some students, but it might not be a complete savior for everybody,” Yats said.
Though the new plan is a big step for borrowers, there are still some weaknesses.
Making smaller payments will increase the amount of interest the loan accumulates. Borrowers will also have to submit annual paperwork in addition to paying taxes on any loan that has been forgiven after 25 years.
There might be some drawbacks, but one student sees the positive aspects of the plan.
“I think this is a good step forward,” Saline freshman Kurt Maj said. “Students struggle with loans every year, and this should help them. I like that the plan helps both teachers and nurses. Those professions are very important to our society and should be helped out by the government.”
Yats said there is still more work for the government to do to combat student loan debt.
“As a nation, if we are concerned about student debt, we need to look at the affordability of college,” he said.