Obama Initiative May Cut Loan Burdens: With the typical four-year college graduate accumulating more than $20,000 in loans, the Obama administration is banking on a new initiative that is a reboot of an existing but little-known concept – income-based loan repayment.
While complex in execution, the idea has a simple premise: Students repay their loans based only on how much they earn. Since payments are pegged to income, borrowers would have the flexibility to take lower-paying public service jobs without excessive debt burden.
“This is a fantastic program for students who want to go into lower-paying careers or are just having a hard time,” said Rich Williams, higher education advocate at US PIRG in Washington, D.C., a consumer and public interest group. If approved, the plan could have a “profound” effect on students, he told Diverse.
With jobs scarce for recent graduates in a down economy, students could have their monthly loan payments capped at 10 percent of their discretionary income — defined as the earnings that exceed the poverty level. Any remaining debt would be forgiven after 20 years.
