Obama Student Loan Forgiveness Program

Obama Student Loan Forgiveness Program has become the nickname for a program actually called the William D. Ford Direct Loan program. The name came about when President Obama reformed part of the Direct Loan program in 2009 in his Health Care and Education Reconciliation Act of 2010. It’s important to keep in mind all the programs are offered for federal student loans.  Private loan borrowers are not able to benefit from any of the below information.

obama student loan forgiveness

In this program, there are many benefits that a borrower can take advantage of.  The borrower has the ability to consolidate all their federal student loans into one new loan, and in that consolidated loan the borrower is able to choose a repayment plan that is affordable.

Benefits of the Obama Student Loan Forgiveness Program

  1. The direct loan program offers five different repayment plans:

  • Standard Repayment

    – The borrower will pay a fix amount each month for the life of the loan. The payment would be determined by your borrowed amount, interest rate, and term of the loan.

  • Graduated Repayment

    – The borrower would make payments lower than the standard repayment plan, but would gradually increase every two years.

  • Income Contingent (ICR)

    – In this plan, the borrower would make payments based on their income, family size, loan balance, and interest rate. Borrowers in the ICR can have a payment as low as $0.00/mo

  • Income Based (IBR) – This plan bases the borrower’s payment strictly on their income and family size. The balance of the loan and interest rate are not used in calculating the monthly payment.  The borrower would be responsible to pay 15% of their discretionary income to their federal student loans. Borrowers in the IBR can have a payment as low as $0.00/mo
  • Pay As You Earn(PAYE) – This plan usually has the lowest monthly payment, and is also based on your income but uses 10% of your discretionary income as a payment instead of the 15% used in IBR. Qualifying for the PAYE repayment plan is more difficult than the others. Borrowers in the PAYE can have a payment as low as $0.00/mo
  1. Interest Forgiveness:

    In the Obama Student Loan Forgiveness program, interest in the IBR does not capitalize on the subsidized portion of your Direct Loan. This applies only for the first three years of your IBR payment, and only if your IBR payment is less than what is normally due in interest. This can amount to many thousands of dollars depending on your loan balance and what type of payment you currently qualify for.

  1. Public Service Loan Forgiveness:

    Payments made in the Direct Loan program in an IBR, ICR, or PAYE repayment count as qualifying payments for those who work in the public sector and would like to apply for public service loan forgiveness In the public service loan forgiveness program, you may qualify for forgiveness after 10 years or 120 payments instead of the standard 20-25 year forgiveness. Unfortunately, many people are not aware that they must be in the Direct Loan program and in one of the correct repayment plans to qualify for this forgiveness.

  1. Teacher & Disability Forgiveness:

    There are other programs that offer student loan forgiveness as well, but they are not part of the Obama Student Loan Forgiveness (Direct Loan) program. These are separate programs that exist specifically to help teachers by offering principal reduction or the disabled by offering a complete discharge on your federal student loans.

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