We’ve often discussed the arrangement the U.S. Department of Education has with debt collection agencies to collect on federal student loans. A new repayment program starts today, December 21, that will enable former students to bypass debt collection agencies and avoid undue financial hardship.
According to a report in the Associated Press, the “Pay as You Earn” program calls for monthly payments equaling ten percent of discretionary income, and forgives loans after 20 years. While an estimated 1.6 million consumers are eligible to take advantage of the program, there are a few caveats. First, the loans must be federal loans (as opposed to private bank loans). Second, the loans must have originated after October 1, 2007 and borrowers must have received a disbursement after October 2011. For those borrowers who work in public service jobs, loan forgiveness occurs after ten years.