This is a guest post by Sam.

The amount of student debt is climbing at a significant rate. It was announced by Consumer Financial Protection Bureau that the figure crossed the earlier estimate made by New York of $1 trillion in the fourth quarter 2012, and the figure is to rise further according to experts.

All the borrowing is taking place irrespective of whether students will find employment or will be able to pay back these loans. Private student loan borrowers may be at a greater risk. Every loan that is discharged will incur a loss to the lending parties, and their immediate response would be to place reserves in the form of expensive capital to offset the risk. This is going to increase the cost of borrowing for new students due to the increase in interest.

Policy makers have made private student loan dischargeable, which means the private students may be able to pass the effects of early life bankruptcy if they fail to repay the debt.

Legislators also maintain belief that modifying the Bankruptcy code can lead to modest relief. However, proper policies will be required such as changing the ‘under hardship’ concept to provide relief to relief based on the economic status of borrower.

The Department of Education also updated their income-based repayment plan, which has been in effect since 21st Dec, 2012. Previously, the program had cap payments at 15 percent of the discretionary income of students, while the left balance can be forgone after a gap of 25 years. Under the updated version of the program, called ‘Pay as You Earn’, the remaining balance will be forgiven after 20 years while the cap payments will take place at 10 percent.

The eligibility includes a federal student loan that has been borrowed after 1st October, 2007 and on or after 1st October, 2011. Over 1.5 million students will benefit from the updated version. This program excludes private student loans (already in a safety net due to discharge option) and federal parent college loans. It’s available for students who want to borrow for a bachelor’s degree from college. Students are slowly becoming aware or this program.

The institute of College Access and Success analyzed that a student who has a debt of $26,000 upon graduation, and earns $25,000 per year will have to pay $69 monthly under the new program as compared to the $103 payment under the Income Based Repayment program.

The Pay As You Earn program is also a blessing for those who are rejoining school from work. Both the programs offers hope to millions of students who would otherwise be left in the debt darkness for the rest of their lives.  The Government is working to create awareness for the program and how it works.

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