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Obama seeks lower payment cap on student loans

January 25, 2010 |  3:25 pm

The Obama administration wants to offer more debt relief to student borrowers.

As part of the White House’s “middle-class” aid initiatives unveiled today, President Obama proposed that students making payments under federal college loan programs would have monthly payments capped at 10% of income exceeding a “basic living allowance.”

That would lower the payment cap for qualified borrowers from the current maximum of 15% of income. The 15% maximum took effect in July under the government’s income-based repayment program, although some very-low-income borrowers are making no payments at all under that program.

As an example, the White House said, the 10% cap would mean that the maximum monthly payment for a borrower earning $30,000 a year who owes $20,000 in loans would be $115 a month, instead of $228 under the standard 10-year loan repayment plan.

The administration also proposed expanding the government’s debt-forgiveness program for student borrowers. Under current rules, all remaining federal student debt can be forgiven after 25 years. The White House wants to cut that to 20 years.

Already, borrowers who take public-service jobs can have their remaining debt canceled after 10 years. The administration would retain that cutoff for public-service workers.

The fact sheet on the administration’s proposal is here.

-- Tom Petruno