This week, the U.S. Department of Education will begin offering certain students a new long-term option for repaying direct federal loans called the “Pay as You Earn” plan.
On Friday, students who have taken out direct federal student loans after Oct. 1, 2007 and have received at least one disbursement after Oct. 1, 2011 could be eligible to participate in the program, which is an effort to keep higher education affordable and to relieve current student debt.
The “Pay as You Earn” plan is an enhancement of the education department’s Income-Based Repayment (IRB) plan, which has been criticized for not being popular among students. That plan caps student loan repayments at 15 percent of discretionary income and loans are forgiven after 25 years of participation.
The new plan will cap loan repayments at 10 percent of an eligible student’s annual discretionary income and after 20 years the remainder of the loans will be forgiven.
Erin Clarer with the Kentucky Higher Education Student Loan Corporation says the program is aimed at helping those making less money.
“One example that comes to mind is perhaps a social worker where most jobs in the field require a master’s degree, so there may be some significant loan debt but maybe the salary range is not as high some other career choices,” she said.
A report by New America Foundation shows that graduate students taking out higher amounts of student loans may be the big benefactors in the new plan. The report suggests because those with a master’s degrees make more money, they will be forgiven larger amounts after the 20 year period.
Officials estimate there could be nearly 1.5 million eligible applicants for the program. The Project for Student Debt shows nearly 60 percent of Kentucky’s recent college graduates have some college debt, which ranks the state in the middle nationwide.
Officials recommend students contact a counselor to consider what option works best for them.
The plan is scheduled to begin Friday.