Student Loan Forgiveness Limit Possible Change

Students may need to rethink their student loan repayment strategy with the possible change in the student loan forgiveness limit.  Currently there is no limit to the forgiveness amount under the Public Service Loan Forgiveness Program.  It may be changing shortly.

President Obama’s proposed budget for 2015 could have major changes to the way students decide to finance higher education and pick places of employment.  The proposed budget for 2015 is suggesting that a $57,500 cap be put on the Public Service Loan Forgiveness Program (PSLF).  Currently, the PSLF program allows people who have public service jobs the ability to have federal student loan forgiveness after 120 monthly payments.   This means a person who has direct federal loans has the ability to have the balance of their loans forgiven after making 120 monthly on time payments.   There is no current cap now with this PSLF program.  This incentive may change future student’s mind from entering public service jobs.  In addition, there has been no mention of a possible grandfather clause written into the proposal for people currently in this program.

Another proposed change may affect married couples with student debt who are enrolled in any government income based repayment program.  The budget proposal states that calculating payments for married borrowers filing separately would be listed on the combined household adjusted gross income.  Currently, married couples can file married but separate on their tax return.   This enables married couples to benefit by using the lower income strategies  under IBR while working toward the PSLF requirements.  This will increase many couples monthly payment significantly.

Some of these changes are the react to a few post graduate schools using it as a zero tuition cost incentive.  This was not the original intent of the program.

Before you panic, remember this could just be politics and right now it is just a budget proposal.  This is why you need to stay informed and be diligent on how you pay for college and graduate school loans.

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