Obama’s Student Loan Repayment Plan: What You Should Know

News about the student loan debt crisis is on the forefront of American media outlets.  Collectively, students surpass the $1 trillion debt mark attributed to high interest rates, rising tuition costs, and lower employment opportunities. More and more college graduates are facing monthly student loan payments that turn out higher than expected. The lack of a steady job after college leaves no outlet to deal with the costs of debt. President Obama and his Administration targeted the issue in the most recent budget proposal meeting.

Obama’s Pay As You Earn plan can help over a million student borrowers with their federal student loan debt. In the repayment plan, graduates that apply would enjoy lower monthly bills among other convenient benefits. Monthly payment amounts on Direct Student Loans acquired after 2011 cannot exceed 10 percent of a borrowers discretionary income.  Length of repayment is also extended to 20 years, according to the plan. If the borrower does not repay the debt within the 20-year period, the federal government would forgive all remaining debt without affecting the borrower’s credit score.

Obama’s proposal makes use of market values to determine student loan interest rates, as 10-year Treasury notes would be the standard for loan rates. Ten-year Treasury note rates are currently below two percent, an all-time low given the current state of the economy. For subsidized Stafford loans, the interest would amount to the Treasury note rate plus 0.93 percent; in unsubsidized Stafford loans, the interest would amount to the Treasury note rate with an additional 2.93 percent; and for loans to parents and grad students, the interest would be Treasury note rate plus 3.93 percent. These interest rates still remain well below the average private student loan from traditional financial institutions.

Over two million student borrowers with federal loans can benefit from the Pay As You Earn program proposed by the Obama Administration. The United State government and national credit unions are making an effort to help the ever-growing student loan debt bubble by offering lower interest rates and extended repayment plans. Programs and plans set up by these two entities have the potential to completely alter the student loan platform for the current generation of college students, and those to come.

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Managing your finances can be difficult if you’re a new college student just trying to get by. Become a student member of Valley Federal Credit Union where you can take advantage of student loans and financial advice.  Contact VFCU in Harlingen and Brownsville at 956-546-3108 for more information.