Obama’s student loan initiative aims to lower monthly payments

While school is in full swing for many, the recent months have seen the establishment of President Obama’s Student Loan Forgiveness program. This plan has been in the works since 2009 when Obama reformed part of the Direct Loan program in 2009 in his Health Care and Education Reconciliation Act of 2010.

This initiative aims to strengthen the federal student loan service. Because of this program, the federal government will no longer give subsidies to private lending institutions for federally backed loans, new borrowers will be eligible for student loan forgiveness after 20 years instead of 25 on qualifying payments, and money will be used to fund poor students and minorities and increase college funding. 

Nationwide student loan debt is at an all-time record of $1.2 trillion…”

— cnn.com

Overall, the plan’s ultimate goal is to make the student loan process less intimidating and easier. For example, a student who takes out a loan today has the ability to consolidate all of his or her federal student loans into one new loan, and in that consolidated loan the borrower will be able to choose a repayment plan that is affordable.


  • In 2014, 40 million American’s have at least one student loan.
  • The number has grown by 11 million people since 2008.
  • The average debt is $29,000, $6,000 more from 2008.
  • The average number of loans each person carries is 4.
  • Source: cnn.com & Experian credit bureau

The program offers five payment plans. These are standard repayment, graduated repayment, income contingent, income based (IBR), and the newly added pay-as-you-earn option. The pay-as-you-earn option usually has the lowest monthly payment, and is also based on one’s income but uses 10 percent of the borrower’s discretionary income as a payment instead of the 15 percent used in IBR according to StudentDebtRelief.us.

The second part of this initiative is the Student Loan Forgiveness plan. In the Obama Student Loan Forgiveness program, interest in the IBR does not capitalize on the subsidized portion of the Direct Loan. This option applies only for the first three years of one’s IBR payment, and only if his or her IBR payment is less than what is normally due in interest. This can amount to many thousands of dollars depending on a borrower’s loan balance and what type of payment you currently qualify for.

All in all, this new initiative brings various new solutions to the table in regards to solving the student loan issue. While it is still unknown if this plan will be effective or not, it is one of the many considerations for solutions to the student debt problem.