How President Obama’s Executive Action on Student Loans Affect You

President Obama signed an executive order on Monday to help ease the growing student loan problem. In signing the order, the president expanded the 2010 “Pay as You Earn” (PAYE) program that caps some graduates’ student loan payments at 10 percent of their monthly discretionary income.

The order also increases eligibility of the program to include students who took out loans before October 2007 or stopped borrowing by October 2011. Allowing these newly eligible young adults to become part of the plan means that relief will be extended to almost five million people.

Discretionary income is determined by subtracting 150% of the federal poverty level ($11,670 for an individual) from an individual’s total income. The amount of money this will save borrowers depends on his/her situation. For example, a 2009 graduate earning $39,000/year will have a monthly discretionary income of $1791.25, which means that his/her student loan payment cannot exceed $179.12.

Standard repayment plans predetermine a payment program for a monthly set amount over $50 during a set number of years. Under a standard plan, the monthly payments tend to be higher than other plans, but the overall time spent repaying the loans is generally shorter.

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