In his State of the Union 2010 speech, President Barack Obama mentioned student loan relief for college graduates who are struggling to make payments:
"...[L]et's tell another one million students that when they graduate, they will be required to pay only ten percent of their income on student loans, and all of their debt will be forgiven after twenty years - and forgiven after ten years if they choose a career in public service. Because in the United States of America, no one should go broke because they chose to go to college."
What he's talking about is a modification to the Income-Based Repayment program (IBR) that was created in 2007. The current program forgives certain unpaid federal student loans after 25 years, or 10 years for people who work in public service. Borrowers enrolled in the program pay a lower monthly payment based on income, family size, and loan amount as long as the monthly payment is lower than what would be paid on a standard 10-year repayment plan.
The Obama-Biden administration wants to modify the program to cap federal student loan payments at 10% of the borrower's discretionary income (vs. 15%) and forgive unpaid federal student loans after 20 years (vs. 25).
If and when the modifications are made it could be good news for college students, assuming no future President repeals the rules.
There could be a few drawbacks. First, the overall amount of interest paid on the loan could increase since it's taking more time to repay the loan. The size of the loan could grow if your monthly payments aren't high enough to reduce the interest. Second, you could owe tax on the loans forgiven if it's more than $600. A bill (H.R. 2492) that would have eliminated this tax was introduced to the 111th session of Congress, but the law failed to move forward before a new Congress session began. If you'd like to see the bill reintroduced, write your Congressman. Unfortunately, the proposal doesn't apply to private student loans.
Update 8/10/10: The Health Care Bill that passed this year included provisions for federal student loan repayments, but the rules only apply to loans taken out after July 22, 2014. For federal student loans taken out after July 22, 2014, income-based payments will be based on 10% of the borrowers discretionary income. Loans can be forgiven after 20 years.
Update 10/27/11: President Obama announced plans to speed up the date for 10% income-based payments and forgiveness after 20 years to loans taken out after 2012 instead of 2014. His plan will also make it easier to consolidate different Federal student loans with a slightly lower interest rate.