The White House's plan for managing student loans

(This information was taken from a White House press release.) The President has announced a series of additional steps that the Administration will take to make college more affordable and to make it even easier for students to repay their federal student loans:

Help Americans Manage Student Loan Debt by Capping Monthly Payments to What They Can Afford - Allow borrowers to cap their student loan payments at 10% of discretionary income.

(Investopedia defines "discretionary income" as "the amount of an individual's income that is left for spending, investing or saving after taxes and personal necessities - such as food, shelter, and clothing - have been paid. Discretionary income includes money spent on luxury items, vacations and non-essential goods and services.  It is derived from disposable income, which equals gross income minus taxes.")

The President has announced that his Administration is putting forth a new “Pay As You Earn” proposal to make sure these same important benefits are made available to some borrowers as soon as 2012. The Administration estimates that this cap will reduce monthly payments for more than 1.6 million student borrowers.

Borrowers looking to determine whether or not income-based repayment is the right option for them should visit http://studentaid.ed.gov/ibr.

Improve Ease of Making Payments and Reduce Default Risk by Consolidating Loans - Provide a discount on consolidation loans. While all new federal student loans are now Direct Loans thanks to the historic reforms in the Health Care and Education Reconciliation Act, there are still $400 billion outstanding in old Federal Family Education Loans. These loans offer fewer repayment options and are unnecessarily expensive for taxpayers. In addition, about 6 million borrowers have at least one Direct Loan and at least one FFEL loan, which requires them to submit two separate monthly payments, a complexity that puts them at greater risk of default.

To ensure borrowers are not adversely impacted by this transition and to facilitate loan repayment while reducing taxpayer costs, the Department of Education is encouraging borrowers with split loans to consolidate their guaranteed FFEL loans into the Direct Loan program. Borrowers do not need to take any action at this time. Beginning in January 2012, the Department will reach out to qualified borrowers early next year to alert them of the opportunity.

For more information on managing student loans, go to: https://studentloans.gov/myDirectLoan/index.action