Academic Master

Business and Finance

Pay As You Earn Loan Forgiveness Plan

Description of the Problem

The PAYE was an initiative of the federal government to try and help college students pay their outstanding loans.The follow up became a problem to the federal government, and it is this challenge that they were trying to solve with the PAYE and the REPAYE plans.

These two programs are among the income-based repayments plans adopted by the federal student’s borrowers and have since then become famous. To sign for this program, financial distress had to be long-established a point where you are incapable of making the required payments on a standard ten-year repayment plan.

The program was first initiated by then the president of U.S Barack Obama in Oct. 2011 and is far espoused as the ‘Obama Student Loan Plan.’The most outstanding component of this plan is to cap monthly loan repayments at 10% of your income and give loan forgiveness past 20 years of qualified payments.

The problem with the PAYE plan was that it limited to students who received William D. Ford Direct Loans after Oct. 1, 2007, and had funds disbursed to them on or after Oct. 1, 2011. Those loans include Direct Loans, subsidized and unsubsidized, Graduate PLUS loans and Direct Consolidation Loans made after Oct. 1, 2011, unless they contain Direct or FFEL loans made after Oct. 1, 2007.

Ethical Thinking                 

The most important questions while looking at this would be Fairness, Responsibilities, Empathy, and Rights.

  1. This fairness should be able to guide on how you can best balance the legitimate interests of everyone. To achieve this every individual is treated according to his capability when it comes to the loan repayment plan, and this repayment plans can be changed anytime to the one best suited for you at that specific point or stage for free.
  2. It brings out the duties or the obligation of everyone who befits or benefited from this program. It can be dispense with by making sure that every beneficiary repays back this loan within the stipulated time.The sustainability of this program highly depends on the loan repayment by all the beneficially.It makes responsibility a key point here.
  • It involves profoundly caring for those involved. Caring needed for the management involved with this Programme to understand and be able to deal with individual cases which may arise while administering the PAYE Programme.
  1. If the amount you would have to wage under the PAYE or IBR plan (based on your salary and family size) is more than what you would have to pay under the 10-year Standard Repayment Plan, you won’t subsidy from having your monthly payment amount based on your income, so you don’t qualify.


Critics have pointed out changes to the Programme.It came into existence after being passed in the Congress and being signed by the then president of U.S.A. They argue that they didn’t consider the market risk involved in making the loans. They were of the opinion that this Programme forces many Americans to pay for the ‘forgiveness’ even when they don’t have bachelor’s degree themselves. The subsidies in the long term can drive the cost of education up.

Public Service Loan Forgiveness was designed by the College Cost Reduction and Access Act of 2007 to reduce the weight of student loans for greatly-qualified graduates and reassure them to pursue professions in the public service division.

This forgiveness option applies exclusively to Direct Federal Student Loans. Private student loans are not qualified for Public Service Loan Forgiveness. To obtain loan forgiveness below this package, you must be a full-time worker in public service job and make ten years of on-time monthly payments after merging your federal loans into a qualified repayment program.

Influence of Context

PAYE Programme was taken as the long-term solution to college students who for a

have been struggling for a long time to repay their college education loan. In most cases, it was assumed that some of them might not be able to repay the whole amount due to financial c

Challenges and for this case, the law also allows for loan forgiveness after 20 years of payments, and after ten years for those in “public service” — a broad category that includes government and nonprofit workers.

Politics in a significant way is affecting this Programme. President Trump has proposed changes to this program, but as of July 2017, none of the changes have been legislated. It is as a result of change government from the one which initiated it. The result of this might be a whole different PAYE term.

The economy is also affecting the initial idea together with the forgiveness plan since some Americans see this as a burden to them. Even the growing number of borrowers expecting to have their loans forgiven is enormous thus stretching the money allocated in the budget to cater for this Programme.

My Position as a Student

It is of my opinion that the government should strive to sustain the PAYE loan repayment plan for college students. By doing this, it will be able to grow the economy in the long run since more students will be able to access college education despite their financial constraints. Also, the authorities involved in the whole process of making sure that the loans are paid back should be capable of doing this with all the fairness required since failure to observe such will be disadvantaging some borrowers whose income is low compared to the average wage. Although this action may mainly affect the economy since the higher the number of borrowers the higher the number of defaulters too, the institution should come up with stringent measures to deal with this shortcomings.

In 2013only, 124,000 people enrolled in the PAYE plan. A year after, Obama directed the secretary of education to suggest regulations to possibly cap credits for another 5 million people. The loan program variations and expansions tacked on the extra $22 billion to the price tag.It shows the high rate of growth and development of this initiative.


The government should view the risk the way cloistered lenders would, something is known as Fair Value Accounting. The government doesn’t use Fair Value Accounting but instead tracks the Federal Credit Reform Act of 1990, or FCRA, when making forecasts. It has initiated those numbers more accurately because unlike a bank, the federal government doesn’t require to get a profit and is better able to branch out. The Obama administration has promised it is working on slowing the soaring costs, for instance, by showing prospective borrowers what they’re getting for their money.By doing that the whole project would become a success celebrated by all citizens.



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