NEW YORK (MainStreet) For many federal student loan borrowers, the most noteworthy part of the $1.1 trillion compromise budget passed by Congress earlier this month is what's missing: mention of the much-anticipated Pay As Your Earn (PAYE) federal student loan harmonization proposal, which would extend PAYE's benefits to all eligible federal student loan borrowers including those currently under less-favorable programs, such as the Income Based Repayment (IBR) plan. The proposal, which appears to have been omitted from the approved budget plan, could've also saved the broader economy about $15 billion.
This is disappointing for many borrowers facing financial hardship, but it also highlights the difficult economic prospects of a generation mired in record levels of debt. As aggregate student loan levels exceed $1.2 trillion, and individual loan balances exceed $29,000, many young borrowers see their future prospects tied to their ability to manage their debt.
The Financial Benefits of PAYE
PAYE, which caps monthly federal student loan payments at a maximum of 10% of a eligible borrower's disposable income and offers forgiveness of any remaining loan balance after 20 years of on-time payments, is only available to borrowers with no federal loans prior to October 2007 and who received a federal loan disbursement on or after October 2011. For borrowers who do not meet these program requirements, there is IBR, which caps monthly payments at a maximum of 15% of disposable income and offers loan forgiveness after 25 years of payments.