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What Is Obama Student Loan Forgiveness?

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President Obama has been a champion of helping people who have been burdened by student loan debt, but a lot of people are having trouble finding out about the new program he created to help students in debt. The Obama Student Loan Forgiveness Program, which people are searching for, is technically called the Pay As You Earn (PAYE) program.

The goal of Obama Student Loan forgiveness is simple – keep student loan debt manageable and then forgive the remaining balance if certain requirements are met. Too bad more people aren’t enrolling in it. The reason? People just don’t know how to ask for it.

If you were to call up your lender today and ask for the Obama Student Loan Program, they will tell you they have no idea what you’re talking about. Remember, these companies are in business to make money servicing your loan, not to explain to you all of the different options available to you. Yes, they may give some details, but in reality you’re talking to a clerk, not a student loan counselor.

What you want to ask for is: Pay As You Earn (PAYE). Here’s why:

Obama Student Loan Forgiveness: PAYE

The Pay As You Earn Program is a great way to get student loan forgiveness while also making your student loan payments reasonable. This plan sponsored by Obama is technically a repayment program, not a student loan forgiveness program, which is one of the ways he was able to sign it into law. However, it has a student loan forgiveness option at the end, which is helpful for borrowers.

It works like this: you simply need to call you lender and ask to be enrolled in the PAYE Program (Make sure you say Pay As You Earn and NOT Obama Student Loan Forgiveness). In order to setup the program, you will need to provide your tax returns for the previous year, and pay stubs from this year. It will typically take 60-90 days to process your application.

Based on the paperwork you submit, the Department

of Education calculates a “Discretionary Income” for you. The actual amount of your “discretionary income” is determined by a formula based on your family size and income tax returns. has a great calculator that can help determine the amount. Under Obama’s PAYE plan, your student loan payment will not exceed 10% of your discretionary income – which is a huge benefit for borrowers.

Where’s The Student Loan Forgiveness?

But that’s not all. After making payments under the PAYE program for 20 years, any remaining balance you have on the loan will be forgiven **poof**. That’s the biggest benefit for borrowers. Not only do you get reasonable payments, but you also can have the remaining balance forgiven if you make all your payments in the program.

However, it’s important to note that under Obama’s Student Loan Forgiveness Plan, you will owe taxes on any loan balance forgiven. This is what makes it different from traditional student loan forgiveness plans .

For example, if you have $50,000 in student loan debt forgiven under the plan, you could owe around $11,000 in Federal income tax. That could be tough to pay, but for many, it’s easier to pay this smaller amount than the original student loan balance. Plus, you can setup payment plans from the IRS as well, which could ease the burden.

Is Obama Student Loan Forgiveness Right For Me?

It’s tough to say. If you can make your payments easily under the Standard Repayment Plan, you should keep to that. However, if you’re having difficulty making payments, specifically due to the amount of your student loan (under any standard repayment method), Obama’s PAYE plan or IBR (Income Based Repayment) may make the most sense for you.

(I recommend using Credible. a marketplace for student loan refinancing where you can receive offers from multiple lenders by completing a single form to understand your options).

However, realize that with both PAYE and IBR, you will owe taxes on any student loan amounts forgiven.

Have you looked into IBR or PAYE for your student loans?

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