Get a passing grade on student loan debt

Good news for anyone laboring beneath a crushing load of student debt. New repayment rules, announced by President Obama in October 2011, allow borrowers a significant break. This is a notable broadening of previous rules and offers a real chance for students to get a good start to their post-school lives.

The formula is simple: students who are unable to pay off their loans can enter a program that requires monthly payments of 10% of their discretionary income. If those payments remain current for 20 years, the remainder of the debt is written off. The previous agreement set the formula at 15% and 25 years.

This adjustment marks a huge change for individuals with low incomes, or even those with moderate incomes burdened by severe debt. A recent White House fact sheet provides an example of a nurse earning $45,000 with $60,000 in federal student loans:

“Under the standard repayment plan, this borrower’s monthly repayment amount is $690. The currently available IBR plan would reduce this borrower’s payment by $332 to $358. President Obama’s improved ‘Pay As You Earn’ plan will reduce her payment by an additional $119 to a more manageable $239 — a total reduction of $451 a month.”

The huge advantage is that repayment terms are fixed by income rather than dollars – borrowers with lesser means will have reduced payments. Yes, 20 years is still a long time and 10% is a not-insignificant amount to be taking off the top each month. But this is certainly an improvement from the previous formula, and a much better alternative than being shackled to the entire debt for the rest of your life.

If you have a mountain of student loan debt, you need every tool available to make headway; this new program is a great way to create a new beginning for the rest of your life.