Consumer Alert: Are you in college? Your student loan monthly payments may now be cut in half
ROCHESTER, N.Y. (WHEC) — We’re going in-depth on how the student loan debt relief plan will work. If you make less than $125,000, the government will forgive $10,000. It’s $20,000 for those who got Pell grants. For details on exactly who is eligible and how to apply, click here.
The focus of this article is rule changes for folks who are in college right now and future borrowers. For undergraduates and future students, the president’s new rules for income-based payments will cut your monthly payments in half. And if you’re making monthly payments and haven’t paid off your debt in 10 years, loans of $12,000 or less are forgiven.
Here are the new rules for current and future borrowers.
• No one making minimum wage will have to make a loan payment.
• After 10 years of payments, the government will forgive loan balances up to $12,000. The rule used to be 20 years.
• The government will cover your unpaid monthly interest as long as you make monthly payments.
• Monthly payments will be no more than 5 percent of your discretionary income. It used to be 10 percent. This rule is a bit complicated. Let’s go in-depth.
Let’s say a college student is due to graduate next year with student loan debt. After graduation she lands a job and has an adjusted gross income of $40,000 For the purpose of student loans, your discretionary income is your adjusted gross income minus 150 percent of the federal poverty guidelines. So let’s do the math. The federal poverty level for a household of one is $13,590. Now we multiply that by 150 percent and we get $20,385. So now we subtract that amount from her adjusted gross income – $40,000 minus $20,385 equals $19,615. That’s this woman’s discretionary income. Her payments can be no more than 5 percent of that. So we multiply $19,615 by 5 percent. and we get $980.75. That’s the maximum she’ll pay annually. To get her monthly payments, we divide that by 12 and you get $81.72 cents. So no matter how much she owes, as long as she’s making $40,000 her payments will be no higher than $81.72. Before the rule change, her payments could be double that amount.
For the complete list of rule changes, click here.