Earlier this week, President Obama had a town hall meeting with Tumblr Founder, David Karp, who ironically skipped college to pursue entrepreneurship, to discuss the state of student loans. Prior to the chat, President Obama expanded the Pay As You Earn (PAYE) so that millions more borrowers can qualify for lower monthly payments, capped at 10 percent of their income.
Via the Department of Education, here’s how to determine if you are eligible for the PAYE plan:
To qualify for Pay As You Earn, you must have a partial financial hardship. You have a partial financial hardship if the monthly amount you would be required to pay on your eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to repay under Pay As You Earn.
The Standard Repayment Plan predetermines a payment program for a monthly set amount over $50 during a set number of years. While the monthly payments tend to be higher than other plans, the overall time spent repaying the loan is typically shorter.
Use the calculators at The Department of Education to compare the payout for a Standard Repayment Plan vs. a Pay-As-You-Earn plan to give you concrete numbers and timelines.
The bottom line is that these adjustments reduce the amount that you have to pay in the short run while extending the life of the loan, ultimately increasing how much you have to pay back in full. This is great for those of us strapped for cash, but don’t be fooled that you are getting a discount or that government is going to give you pass on the loans.
It’s not happening.
The fifty-three minute video is worth watching to draw your own conclusions.