The need for enough income to make large monthly payments may discourage some graduates from starting a new job-creating business or entering teaching or another lower-paying public service career.
Today, the President announced a series of additional steps that the Administration will take to make college more affordable and to make it even easier for students to repay their federal student loans:
Help Americans Manage Student Loan Debt by Capping Monthly Payments to What They Can Afford
Allow borrowers to cap their student loan payments at 10% of discretionary income. In the 2010 State of the Union, the President proposed - and Congress quickly enacted - an improved income-based repayment (IBR) plan, which allows student loan borrowers to cap their monthly payments at 15% of their discretionary income. Beginning July 1, 2014, the IBR plan is scheduled to reduce that limit from 15% to 10% of discretionary income.
Today, the President announced that his Administration is putting forth a new "Pay As You Earn" proposal to make sure these same important benefits are made available to some borrowers as soon as 2012. The Administration estimates that this cap will reduce monthly payments for more than 1.6 million student borrowers.
For example:
1) A nurse who is earning $45,000 and has $60,000 in federal student loans. Under the standard repayment plan, this borrower's monthly repayment amount is $690. The currently available IBR plan would reduce this borrower's payment by $332 to $358. President Obama's improved 'Pay As You Earn' plan will reduce her payment by an additional $119 to a more manageable $239 - a total reduction of $451 a month.
