Understanding Obama’s Student Loan Debt Plan: Will It Help You?

How does the consolidation work?

Again, this only applies to federal loans. But regardless of if a borrower had federal loans through the government itself (Federal Direct Student Loan Program) or through a private lender, they would be able to receive a .25% reduction from the originator of each loan (whom they first received the loan from), and up to a .25% reduction on the entire loan consolidation. The new rate they would have on the consolidated loan would be a weighted average.

Another benefit of consolidating is that the combined loan will now be under the Federal Direct Student Loan Program, which means the government will be your loan servicer,  and therefore eligible for Public Service Loan Forgiveness Program. The forgiveness program work by forgiving the balance of the loan after 120 monthly payments as long as the borrower has worked in public service. Public service jobs are defined as a wide range, and more info can be found on the Federal Student Aid site. Beginning in January 2012, when the “Pay As You Earn” plan becomes available, eligible borrowers will be contacted by the government .

All in all this isn’t so much a plan to help those already in debt as much as it’s a plan to help current students avoid a debt payment problem upon graduation. However it will help. And we all know this economy isn’t showing signs of improving any time soon.

 

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