Student Debt Crisis and Payment Options for Student Borrowers

It is without a doubt that the student loan crisis is one of the most prevailing public policy issues of our times. Recently, President Obama announced that his administration is taking the necessary steps to help relieve students of crushing amounts of education debt. Here is a comprehensive overview of payment plans that the President wants student borrowers to be aware of when it comes to paying off student loans.

Pay As You Earn

The President wants students to able to afford paying off their student loans through a modified version of the Income-Based Repayment plan. Under this proposal dubbed “Pay As You Earn”, students would only pay back a maximum amount of 10% of their monthly discretionary income to loans versus the current 15%. Also, student debt would be forgiven after 20 years rather than 25 years.

Income Based Repayment

Under this plan, student borrowers are allowed to reduce their monthly debt payments based on their income. However, students must demonstrate a “partial financial hardship”. This is defined as when your standard monthly payment is more than 15% of your discretionary income. Income Contingent Repayment Under this flexible plan, monthly payments are based on adjusted gross income, family size, and spousal income and total amount of direct loan debt. The maximum repayment period is 25 years which afterwards students will have their debt forgiven. However, students may have to pay taxes on the forgiven debt amount.

Nonetheless, unemployment rates, although steadily dropping, still remain relatively high and are causing concerns among the nation’s leading economists. There is a fear that a shaky employment situation is making it increasingly difficult for students to pay back loans. Some economists predict that the student loan crisis could explode at any moment, causing major lenders to go into financial red, repeating the same banking collapses seen in 2008.

For students currently enrolled in school, it is important to  focus on finding the right career that will prepare you for a job in an industry that pays out very high wages. One of the biggest mistakes that many college graduates are making is not studying the right fields that will prepare them for jobs in industries that are always hiring and pay relatively high salaries. If you are a career switch, consider online career training to prepare for your next dream job. The world is filled with plenty of high-paying job opportunities, you just need the skills set to be marketable to employers.

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