LOWER MONTHLY STUDENT LOAN PAYMENT WITH PAY AS YOU EARN

The program, called Pay As You Earn (PAYE), that was originally put into action in 2012, was limited to borrowers who took out loans after October of 2007; keeping a large portion of graduates and students left with the less favorable Income Based Repayment (IBR) plans.

PAYE allows borrowers to set their monthly student loan debt payments at a maximum of 10 percent of their discretionary income (defined as the borrower’s AGI minus 150 percent of the federal poverty level).  This allows many borrowers to pay hundreds of dollars less every month than what they would have paid in another plan.  Better yet, after making 240 consecutive payments in the PAYE program the remainder is forgiven, GONE FOREVER.  There may be tax consequences but I imagine Congress will fix that when the first forgiveness happens in the mid 2020s.

While this sounds like a win-win, it does come with some risks and challenges. Many view this approach as a symptomatic treatment, jury-rigging the system to provide quick relief without actually addressing the problem directly. Not the least of these problems is the fact that balances which have been forgiven following the 20 or 25 year time limit will be taxed as ordinary income—this would leave millions with tax bills many would consider unpayable, on a schedule far steeper than much student loan debt. There has been a proposal by the Obama administration to award forgiveness tax exempt, but it has yet to receive Congress’ approval, and again appears to be a struggle to keep up with symptoms rather than acing the root of the issue.

The concept of making repayment of student debt income-based has been embraced by senators on both sides of the party line: with President Obama calling for community college to be tuition-free and Republican Senator Marco Rubio endorsing income-based repayment as the standard for all borrowers, the Wall Street Journal reports that this is no longer a partisan issue.  This is one political and fiscal battlefield where both sides may at last be willing to work together to make education in the United States a right rather than a privilege.