Obama Student Loan Forgiveness Act

With student debt now amounting to over $1 trillion, default rate at over 13 percent and the economy still in the early stages of a slow recovery, thousands of students and college graduates are facing increasing interest rates, a future that includes mounting debt, lack of steady employment and little hope of paying back their student loans. President Obama’s student loan forgiveness program proposes a means of offers more than a glimmer of hope for many.

President Obama’s Program

Introduced on March 8th 2012, the Obama student loan forgiveness program (Student Loan Fairness Act) will offer some people a ‘way out’ from underneath the mountain of student loan debt they have incurred. The program only applies to federal loans, so those with private loans are not eligible for this program and will have to seek other paths to student loan debt forgiveness. Obama hopes that by implementing his program student loan defaults will be curbed and the economy will benefit accordingly.


To be eligible to apply for the Obama student loan forgiveness program a person must either be unable to complete their student loan payments or have been paying their loan payments over an extended period of time. Those who had been paying regularly for over twenty years would automatically be forgiven their student loan debt. Military personnel and other government agency workers may qualify to have their debts cleared after 10 years of regular payments.

Main eligibility requirements are as follows:

– Have federal student loans

– Have made at least 120 payments on time

– Not be in default of student loan

– Be a US citizen

– Have completed a course of higher education

Student Loan Forgiveness Plans

There are several plans that lead to having student loan debt forgiven and what they all have in common is a way for college graduates to pay less. Under the program eligible people would never be required to pay more than 10% (down from the current 15%) of their income regardless of how much or little they earn, making the payments more manageable.

Debt Forgiveness Amounts

Student loan debt may be forgiven up to a total of $45,000 but those applying must have paid off at least 10% of the total debt, made at least 120 payments on time and not defaulted on their loan.

Interest Rates

At time of writing the interest rate on student loans is capped at 3.4% which it has been since 2007, but is set to double on July 1, 2013 if Congress does not come to an agreement. At this time there is considerable distance between the two sides and agreement is in doubt, but one thing they do agree on is that interest rates on student loans cannot stay as low as they have been for the past several years, and must be brought more into line with current market rates. The proposed interest rate increase of July 1 would amount to an additional $1000 for many students. While this may not sound much over the period of the loan the additional $7 per month would be an added burden on those already struggling to make their loan repayments.

A recent bill passed by House Representatives would allow interest rates to fluctuate each year in line with the government borrowing costs. This would mean good news when interest rates are low but of course would mean higher interest rates when government borrowing costs were high.

Under Obama’s program the interest rate would remain the same throughout the term of the loan (usually 10 years) as it was when the loan was first taken out, making it easier for students to know before taking out a student loan how much they would have to repay.


While Obama’s intention is to make it easier for college graduates to pay back their student loan debt and be able to maintain a reasonable standard of living, there are those who oppose his proposal, believing it will encourage students to borrow too much and allow colleges to increase tuition fees. It would not address the real problems students are facing:

– College tuition is too expensive

– Serious lack of jobs for graduates

– A struggling economy


While Obama’s proposal has been dubbed as a student loan forgiveness program, the term is misleading. The official name of Student Loan Fairness Act is more in line with what the program actually offers. It is not a means for people to avoid paying their loans because the eligibility requirements demand at least 120 payments in most cases. As long as the requirements are met, the program would be a welcome relief for many who have been struggling for many years.