The Pay as You Earn Plan has been a huge success. It came as a big relief for people facing the economic meltdown. President Obama Federal Loan Forgiveness PAYE Plan is helping huge number of people who were struggling to meet both ends meet. The PAYE program surely comes up as a big relief and is of great help in certain situations. Let us take a look at the benefits offered by the PAYE Plan.
1 Payments are Based on Earnings:
Some of you would be like Hey – What is new with payment based on earning? The Income Contingent Repayment Plan and Income Based Repayment are already offering the payment based on earnings. Well, there is certainly a major difference; the newly launched PAYE plan offers sizeable reduction in monthly maximum cap. In case of ICR and IBR the student borrower needs to pay 15 percent of their discretionary income every month while with Pay As You Earn plan the borrower just needs to pay maximum of 10 percent. If you check thoroughly then you will notice that there is a difference of 5 percent, and that is surely is a big difference.
Some of you would be like Hey – What is new with payment based on earning? The Income Contingent Repayment Plan and Income Based Repayment are already offering the payment based on earnings. Well, there is certainly a major difference; the newly launched PAYE plan offers sizeable reduction in monthly maximum cap. In case of ICR and IBR the student borrower needs to pay 15 percent of their discretionary income every month while with Pay As You Earn plan the borrower just needs to pay maximum of 10 percent. If you check thoroughly then you will notice that there is a difference of 5 percent, and that is surely is a big difference.
2 No accumulation of Interest on Subsidized Loans
One of the concerns with PAYE scheme is that at times the monthly payment end up being very less that won’t even cover monthly interest accrual on the loan, eventually resulting in interest capitalization. If you are wondering what interest capitalization is then let us explain it to you – it means the unpaid interest is added to the principal loan amount, making the loan very expensive in the long run and at the same time making your monthly installment higher in short run.
Well, don’t be worried, here is good news the Pay as you Earn plan has a provision that protects the borrowers from certain kind of Federal Student Loan from Interest Capitalization. The reason is that the government has to pay the unpaid interest on direct subsidized loan for up to three consecutive years, starting from the date you started making payment under PAYE Scheme.
3 Limited Interest Capitalization:
It comes up as one of the remarkable feature of PAYE Plan – under this the unpaid interest will be capitalized under Pay As You Earn Scheme in case you are not facing any partial monetary difficulty. The amount of interest that capitalizes, comes to just 10 percent of principal balance of the borrower. It is calculated from the time the student loan borrower started making payment under PAYE.
4 Loan Forgiveness at 20-Years:
If you make continuous payment under the PAYE plan then you are eligible for applying for loan forgiveness remaining amount after the completion of 20-years. To qualify for forgiveness under this particular scheme you need to make sure that you don’t default payment because if you do that then automatically the loan tenure will increase and for qualifying for forgiveness you need to finish payment within 20 years.
5 Loan Forgiveness at 10 Years:
If the borrower falls under the category of public service workers, means working with government or non-profit organization then under PAYE plan they are eligible for loan forgiveness after 10-years.
If you make continuous payment under the PAYE plan then you are eligible for applying for loan forgiveness remaining amount after the completion of 20-years. To qualify for forgiveness under this particular scheme you need to make sure that you don’t default payment because if you do that then automatically the loan tenure will increase and for qualifying for forgiveness you need to finish payment within 20 years.
5 Loan Forgiveness at 10 Years:
If the borrower falls under the category of public service workers, means working with government or non-profit organization then under PAYE plan they are eligible for loan forgiveness after 10-years.
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