‘Pay As You Earn’ Student Loan Repayment Goes Live

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The average student debt burden has increased to more than $25,000. And in today’s job market, which is especially tough for young graduates, many student loan borrowers are struggling to meet their monthly payments. Thankfully, relief is on the way for some borrowers. Beginning Dec. 21, many federal student loan borrowers became eligible for a new income-based repayment plan called “Pay As You Earn.” The new plan caps borrowers’ payments at 10 percent of their monthly discretionary income, and forgives remaining debt after 20 years. The plan will help numerous borrowers avoid forbearance or default, options that have lasting, harmful effects on their credit.

Announced earlier this year, Pay As You Earn is designed to help students repay subsidized and unsubsidized Federal Direct Stafford Loans used to finance their undergraduate studies. It will also help students with Federal Direct PLUS Loans for graduate and professional studies, and those with Federal Direct Consolidation Loans that were not used to repay parent PLUS loans. Borrowers with PLUS and Consolidation loans are eligible if they were a new borrower as of October 2007, and if they received a Direct loan after October 2011.

Students whose current loan payments, under the 10-year standard repayment plan, are higher than they would be under the Pay As You Earn plan may also be eligible for the new program. By stretching out payments over a longer period of time, the Pay As You Earn plan helps borrowers reduce monthly payments below the level required for a 10-year plan. If payments under Pay As You Earn do not cover the monthly interest that accrues on a student’s loans, the government will pay the unpaid interest on any Direct Subsidized Loans, and the subsidized portion of any Direct Consolidation Loan, for up to three years. Interested students can find out how much their payments would be under the new plan by consulting the Pay As You Earn Repayment Calculator. Borrowers also can find out if they’re eligible for the program at the Federal Student Aid website.

It is important for the federal government to help student borrowers avoid forbearance and default. Loans taken out as investments in their future should not destroy that future. The Pay As You Earn repayment option is a nice first step toward helping borrowers manage their debt. But the federal government must go further — it must also investigate the factors that have caused student debt to balloon. We should want more for our future engineers, teachers, and leaders than that they can “manage” their student debt. We should want to help them achieve a postsecondary education that doesn’t put them so deeply into debt in the first place.

— Mary Nguyen and Nicole Tortoriello