What you need to know about the Obama student loan forgiveness program
The Obama student loan forgiveness program is a program that has been introduced by President Barrack Obama in order to help students who are struggling to pay their student loan pay it faster and without accruing too much interest. The plan addresses students that have not only settled a great amount of their loan balance for several years, but also those who cannot pay the loan back entirely. Therefore, if you're a student and you’ve made regular payments towards the loan for at least 20 years, then all of your outstanding debts will be cleared up.
One thing about the Obama student loan forgiveness plan that people need to know is that when calculating the loan settled by borrowers, it takes into account the income and size of the family. As a result, people who qualify for it will have their loan payments reduced to just ten percent of their monthly income. For instance, someone who makes 50 thousand dollars a year and has a current loan balance of 40 thousand dollars at a six point eight percent APR needs to pay at least 460 dollars monthly under the standard repayment scheme. Given these numbers, it seems that the borrowers may actually benefit quite a lot from low payments.
While the student loans forgiveness Obama has many benefits, it seems that not everyone may qualify for it. How come? Well, it's because the Obama student loan forgivness is only available to those who've contracted federal loans, such as Stafford or Perkins loans. On top of that, the loan should have been contracted on or later than October 1st 2007 or people need to have considered a federal direct loan in order to be eligible for the Obama student loan forgiveness plans.
As for the direct federal loan, it needs to have been obtained no later than October 1st 2007. Keep in mind that if you’ve taken out a standard student loan, then you are not eligible for the Obama student loans forgiveness program. On the other hand, if you’ve taken out a private loan, it might be a good idea to see if you can get student loan forgiveness from a private institution or from your employer.
No Tax Penalties with the Student Loan Forgiveness Program
If you've taken out a federal student loan, then the Obama school loan forgiveness offers you the benefit of not having to pay tax penalties on it. As you know, in the past, when you'd have written off your debt, the amount was eventually added to your tax return as taxable income. In fact, there are still a lot of people who borrow money from banks and similar institutions in order to pay for their education and are yet to be aware of this.
Capping the Monthly Interest Accrual
Anyone who's had to make payments on a student loan knows very well that if their monthly payments aren't big enough for covering the interest that accumulates down the road, it will lead to a very negative situation that’s more commonly known as "interest capitalization". While the president obama loan forgiveness program caps this, in the past the banks would add the accrued interest to the loan's original principal. As a result, the loan would end up becoming a lot more expensive. In fact, the current laws are so flawed, that no matter if you make payments towards your loan every month, eventually you could still end up paying owing more money to the bank.
Fortunately, the student loan forgiveness program for next year caps interest accrual at just fifty percent when as a borrower your monthly payments are not enough for covering the interest that accumulates on the loan. While for some people 50 percent interest is a ludicrous amount, the laws that are currently in place have no cap on this.
A Much Needed Helping Hand for Students
The Obama plan for student loans forgiveness is simply one of the best solutions for students who have contracted a student loan and are having trouble paying it back. However, while the Obama forgive student loans offer an alternative, students need to meet certain conditions in order to take advantage of the program. At the end of the day, the importance of carefully analyzing your situation and choosing the right alternative for your needs should not be treated lightly. But if you simply meet the terms, then the Obama loans forgiveness is simply a great helping hand that'll help you significantly reduce the interest accruing on your loan.