President Obama recently signed a law to help college students pay off their student loans. The Pay As You Earn proposal reduces the monthly loan repayment rate to 10 percent of an individual’s income and forgives all remaining debt after 20 years.
The new proposal is an improvement from the previous student loan plan that had a loan repayment rate of 15 percent and forgave remaining debt after 25 years.
Graduates must update their income every year through IRS tax forms or other credible documentation in order to maintain the new repayment rates. Graduates don’t have to choose the Pay As You Earn plan after graduating, but can instead start with a different repayment plan and switch between plans as they please.
The Pay As You Earn proposal will be available to any college students who borrow federal student loans beginning July 1, 2012.