For what feels like the first time in the past few months, there's actually some GOOD news on the student debt front.
President Obama announced today that he will be using his executive authority to help relieve some of the burden of student loans. We say it couldn't come soon enough, as student loan debt is currently the 2nd largest source of household debt. Not to mention the news that it's projected to hit the $1 trillion dollar mark by the end of the year.
So what, exactly, does this mean for students?
If you've begun paying off your loans, you know that there are plenty of options. One of the most popular requires borrowers to pay a certain percentage of their discretionary income* each month. Starting next year, the minimum required percentage will drop from 15% to 10%. I did some (extremely) rudimentary calculations to determine how much this will actually save borrowers. If you make about $30,000 a year and pay $650 monthly for rent + utilities, your monthly discretionary income should be around $1,100/month give or take. This means that, if you used to pay about $180 per month towards your loans, you'll now be paying about $110 month. I know I could use an extra $70 bucks each month.
If you've chosen to pay off your loans based on your income (Income Based Repayment is the official name), the remainder of your debt will be forgiven after 25 years. The new measure shortens the length of repayment to 20 years.
Borrowers who have a loan from the Federal Family Education Loan Program can now consolidate this loan with their direct loan, which will lower their interest rates.
There's no point in sugar-coating the fact that these are not drastic measures. They won't effect everyone and they aren't retroactive, so if you took out your loan years ago, they won't help you much, unfortunately. But they are a step in the right direction and that's better than nothing right?
Discretionary income is any money left over from your pay each month after after deducted taxes and living expenses.
We want to hear from you! Will these measure help you? Do they go far enough?