Moving to Income-Driven Options
With continued growth in college costs and student loan debt, income-driven repayment options were created to assist students and families with managing these expenses.
The College Cost Reduction and Access Act created the Income-Based Repayment (IBR) Program for FFEL and Direct Loan borrowers with economic hardship starting July 1, 2008.
The Health Care and Education Reconciliation Act (HCERA) eliminated the FFEL Program and revised the IBR Program to lower new borrowers’ loan payments to 10 percent (from 15 percent) of their discretionary income. It also forgave borrowers’ debt after 20 years of payments (instead of 25 years).
A memorandum from President Obama launched the Pay As You Earn (PAYE) Plan, starting December 21, 2012. The PAYE plan has the same terms as the modified IBR program under HCERA of 2010, but is available to additional borrowers. PAYE extends IBR to borrowers who received loans after September 30, 2007, and continued to borrow beyond September 30, 2011.
A presidential memorandum from President Obama announced the revised PAYE plan, for borrowers who received federal loans before October 2007 but who had not received loans since October 2011. Monthly payments remained at 10 percent of discretionary income. Borrowers’ debt would be forgiven after 20 years of repayment for students with loans for undergraduate education and 25 years for graduate education.