Any American with federal student loans can take advantage of a program that caps their monthly payments, thanks to a revised government plan that goes into effect this month.
All borrowers who received loans directly from the federal government can limit their monthly payment to 10 percent of their discretionary income under the new REPAYE (Revised Pay as Your Earn) plan. The government estimates that the new plan, effective in mid-December, will help 5 million borrowers.
The new program expands the existing Pay as You Earn (PAYE) plan, which applied only to borrowers who took loans out on or after Oct. 1, 2007.
The program covers direct subsidized and unsubsidized loans for undergraduates and Direct PLUS loans for graduate and professional students.
Discretionary income is defined by the government as the difference between your income and 150 percent of the poverty guideline for your family size and state.
Additionally under the plan, any remaining debt after 20 years will be forgiven for those who borrowed for undergraduate study. For those who borrowed for graduate study, the debt will be forgiven after 25 years.
The plan also provides a new interest subsidy designed to prevent balances from growing for those borrowers whose income-based payments don’t cover the accruing interest.
The REPAYE plan comes after President Obama issued a presidential memorandum in June 2014 to the Department of Education requesting new regulations to help borrowers with onerous student debt. The department issued the final regulation for the REPAYE plan in October.
Borrowers interested in the program can apply online with the Federal Student Aid.