The William D. Ford Direct Loan Program is more commonly known as Student Loan Forgiveness. It was a major piece of legislation pushed by the Obama Administration in 2010 as part of the Health Care and Education Reconciliation Act. Keep in mind that federal student loans are different from those given by private loan companies. This student loan relief initiative only applies to federal student loans.
Among other changes, the program allows borrowers to qualify for income-based payments. The basis for this is to be 10-percent of a borrower's discretionary income. Borrowers are also eligible for full student loan forgiveness five years sooner. Where the old law said forgiveness was possible only after 25 years, the new law reduced this to 20 years. There are also extended options for poor students and students of color.
Let's break down the different forms of repayment plans that are currently available under the Direct Loan program:
- Standard repayment relies upon a fixed repayment amount. That is, it is the same each month until the loan is fully paid off. The fixed repayment amount is based upon the full amount that was borrowed, split across the full term of the loan with interest rate factored in.
- Graduated repayment is used more rarely. This allows the borrower to make payments that are lower than standard but which increase every two years until the payments are eventually higher than standard. This assumes the borrower will be able to make a living that increases their spending and repayment ability every few years.
- Income-contingent repayment plans allow the borrower to make payments based on their income, as well as a variety of other factors: the size of their family, the amount of their loan, and, of course, the interest rate.
- Income-based repayment plans are slightly different. They use only the borrower's income and size of their family to calculate monthly repayments. Some terms of the loan – balance and interest rate – are not factored in.
- Pay-As-You-Earn repayment plans often offer the lowest monthly payment of the five plans. It is based on income and asks for 10-percent of your discretionary income, not 15-percent as used in income based plans.
Qualifications for all these plans vary. You may qualify for one, several, or all of them.
Forms of Student Loan Relief
Interest forgiveness may be applied in certain situations. There are instances where interest will not accrue over time, will not start accruing for several years, or where it may be stopped for a certain period of time. The various plans offer different terms and qualifications for interest forgiveness.
Student loan forgiveness is yet another form of student loan relief. Three of the plans mentioned above offer what's called student loan forgiveness. If you're enrolled in the Pay-As- You-Earn, Income-Based, or Income-Contingent repayment plans, at the end of the loan's term, the remaining balance may be forgiven. A term will be anywhere from 20 to 25 years depending on when the loan was made and which repayment program applies to it. The amount forgiven can vary. It is dependent on the original amount loaned, your current earnings, and how stable or unstable your earnings have been throughout the repayment period.
Loan Forgiveness for Public Service is a third form of student loan relief that aides those who serve in the public sector and are enrolled in the Pay-As-You-Earn, Income-Based, or Income- Contingent repayment plans. This reduces the student loan forgiveness period from 20-25 years to as few as 10 years.
Teacher Loan Forgiveness is a fourth form of student loan relief which reduces the balance for those working as teachers. Again, the amount reduced may be dependent on factors such as the total balance, length of term, and how much the teacher earns, among others.
Finally, Total & Permanent Disability Loan Forgiveness allows those who suffer a disability a complete discharge from their federal student loans.
Federal student loans allow borrowers a wide range of flexibility. They're built to adapt to changing life situations and often allow you to re-enroll in different programs if life hits you too hard. Especially under the new laws, there is even greater ability to adapt student loans to your situation.
Student loans aren't the only debt that comes along in life, however. You might go into debt in other ways as a student – sometimes food, books, and rent are covered in the loans. Often, they aren't. Even beyond this, you may need a car and other resources to be able to continue being a student and make it to work, internships, and field or job placements that are critical components of your education. In these situations, people can easily rack up debt (e.g. credit cards) that is not covered by student loan forgiveness programs.
As a student or recent graduate, it can be difficult to get on your financial feet. Should you fall into debt in these other ways, don't despair - and don't give up. Practice steps that help you stay out of debt, such as making and sticking to a budget.
If, however, you find yourself in debt that extends to credit cards and other loans, a reliable debt relief program can help you out of a bad situation.
A debt relief p