Consumer Alert: Are you in college? Your student loan payments could now be cut in half

ROCHESTER, NY (WHEC) — We’re digging deeper into how the student loan debt relief plan works. If you earn less than $125,000, the government will forgive you $10,000. It’s $20,000 for those who got Pell grants. To find out exactly who is eligible and how to apply, click here.

This article focuses on the rule changes for people who are currently in college 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 make monthly payments and haven’t paid off your debt for 10 years, loans of $12,000 or less are forgiven.

Here are the new rules for current and future borrowers.

• No one earning minimum wage will have to repay a loan.
• After 10 years of payments, the government will cancel loan balances up to $12,000. The rule was 20 years.
• The government will cover your unpaid monthly interest as long as you make monthly payments.
• Monthly payments will not exceed 5% of your Discretionary Income. Before, it was 10%. This rule is a bit complicated. Let’s go in depth.

Let’s say a student is due to graduate next year with student loan debt. After graduating, she lands a job and has an adjusted gross income of $40,000. For student loan purposes, your discretionary income is your adjusted gross income minus 150% of the federal poverty guidelines. So let’s do the math. The federal poverty level for a one-person household is $13,590. Now we multiply that by 150% and we get $20,385. So now we subtract that amount from his adjusted gross income – $40,000 minus $20,385 equals $19,615. It’s this woman’s discretionary income. His payouts cannot exceed 5% of that. So we multiply $19,615 by 5%. and we get $980.75. This is the maximum she will pay annually. To get his monthly payments, we divide that by 12 and you get 81.72 cents. So no matter how much she owes, as long as she earns $40,000, her payments won’t be more than $81.72. Before the rule change, his payouts could be double that amount.

For the full list of rule changes, Click here.

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