The Obama administration’s newly announced Pay As You Earn (PAYE) program will affect over six million Americans with reductions of monthly student-debts bills. The US Education Department will propose the expansion of eligibility for PAYE, which sets borrowers’ monthly payments as a percentage of their income by creating a 10% cap (of a debtor’s “discretionary” income, or the amount above 150% of the poverty level.) Doing so is estimated to lower bills by upwards of hundreds of dollars. This program is however restricted to those who took out federal loans after 2007; those with loans from before will have a 15% cap.
By reducing the defaults, administration officials hope to assuage fears of damaging Americans’ credit, which hinders borrowing capacity and slows the overall economy. US Secretary of Education, Arne Duncan, said in a statement, “Unfortunately, for too many hardworking families, it feels like a higher education is simply slipping out of reach. This proposal is an investment in our economy’s future that provides targeted benefits to even more borrowers, so they can stay current on their loans and furthers our commitment to lifting the burden of crushing student loan debt.”
Contributor: Katie Sun