The new Pay-As-You-Earn option allows borrowers to make minimum monthly repayments that are 10 percent of discretionary income rather than the current 15 percent threshold. And loans could be forgiven after 20 years of payments, instead of the standard 25.
President Obama first proposed the student-loan reforms in the 2010 State of the Union Address. Last week, the department issued the final rules to put the plan into place.
Students eligible for the program must have taken out their first federal student loan after Sept. 30, 2007, and at least one after Sept. 30, 2011. Changes in the loan-repayment plan are expected to affect more than 1.6 million student borrowers.
The estimated net budget cost will be $2.1 billion over the 2012-2021 loan cohorts, according to the Federal Register.
The rules also make the current Income-Based Repayment and Income-Contingent Repayment plans easier for borrowers to access. The department introduced a new online tool to streamline the enrollment and recertification processes for eligible borrowers by allowing students to get and transfer their tax information electronically.
Information to compare loan options can be found here.
A version of this news article first appeared in the College Bound blog.