I want to qualify for the "pay as you earn plan" 10% income-based
repayment plan. I have $80,000 in Direct Loans from 2010-2012. I have
a balance of $2,800 on an old student loan from the 1990's. Should I pay
off the old balance before a certain date to make sure and qualify for
the "pay as you earn plan"? Or can I wait to see what rule changes
— Jesse A.
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To qualify for the 10% version of income-based repayment, a borrower
must have at least one federal student loan from 2012 or a later year
and no loans from before 2008.
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These restrictions are intended to limit the number of borrowers who
are eligible for the earlier implementation of the new income-based
repayment plan. President Obama pushed up the implementation through
executive action, as opposed to an act of Congress. Since executive
actions cannot appropriate funding, the change must be implemented at
no net cost to taxpayers. This required pairing the income-based
repayment plan with a program to consolidate the loans of split
borrowers, so that the cost of the new income-based repayment plan can
be covered by the savings from moving more loans into the Direct Loan
program. This necessarily limits the scope of the new income-based
It is unclear, however, whether a federal student loan borrowed for
the 2011-12 academic year will be enough to qualify a borrower for the
new "pay as you earn" plan even if part of the loan is disbursed in
2012. The consolidation of split borrowers must occur in the first
half of 2012 because the Budget Control Act of 2011 precludes the
Direct Loan program from offering any discounts other than auto-debit
discounts for new loans originated on or after July 1, 2012. But there
are no similar restrictions on income-based repayment, so the
effective date for the 10% version of income-based repayment is
The White House's press release
and fact sheet
both use language like "starting in 2012" and "as soon as 2012"
without mentioning when in 2012 the proposal will become effective.
(The press release is even ambiguous as to whether the pay as you
earn proposal is an
referring to it as an "executive action". However, the words
"executive order" were used in the press conference.) Most federal
legislation concerning student loans has effective dates based on the
start of the fiscal year (October 1), the start of the award year
(July 1) or the date of enactment. The 10% version of income-based
repayment, as enacted by the Health Care and Education Reconciliation
Act of 2010, was restricted to loans made to a "new borrower on or
after July 1, 2014." Accordingly, it seems likely that the effective
date for the executive order will be July 1, 2012, the start of the
2012-13 award year.
Borrowers must also not have any loans from before 2008. While this
date does not appear in the press release or fact sheet, it was
mentioned to reporters during a press conference announcing the