KANSAS CITY, Mo. — A safety net plan for student loan borrowers could help them from falling into massive debt. The plan was announced by the US Department of Education on Tuesday.
It calls for lower monthly payments that would be capped at 5% of a borrowers salary. It offers loan forgiveness that would erase all remaining debt after 10 years.
However, that only applies to those who took out less than $12,000 dollars in loans.
Additionally, the plan says unpaid interest will not be added to a borrowers loan balance as long as they make their monthly payments.
This plan could be important as more than half of all undergraduate students accept federal student loans, while the average public university student borrows nearly $33,000 to get a bachelor's degree.
In fact, nearly $43 million Americans say they have student loan debt, including Kelly Hansen, who says income based repayment plans are her only hope.
“I had an undergraduate degree, I paid student loans, I originally graduated in 91 — those are mostly taken care of,” Hansen said. "I did end up having $90,000 worth of student loans when I graduated from seminary.”
Hansen says the debt has forced her to make some tough life choices, which includes buying a home.
“You're not supposed to have any debt when you start with a house, right?” Hansen said. “So if you have $90,000 worth of debt, it’s kind of hard to be approved for a home loan.”
According to Jason Anderson, owner of Grand Metrics College and Student Loan Planning Firm, the proposed plan will help lots of people like Hansen.
“You're going to be able to pay less overtime,” Anderson said. “They're going to get forgiveness after 10 years, which is unheard of for any of the current plans.”
According to Anderson, this could help the average borrower save about $2,000
“You can use that to save for an emergency fund or putting that towards a car,” Anderson said. "It increases the poverty line, so it protects more income for student loan payments."