A colleague at Georgetown sends along this explanation of a new Obama Administration policy:
[T]he government issued the final regulations for the new Pay As You Earn student loan repayment plan, an initiative of the Obama administration. 77 Fed. Reg. 66088....Although the regs are quite complex, the bottom line is this:
Graduates currently in school or who graduated last May who DO NOT do public service work need not repay more than about 7% of their income toward their federal (that is, federally guaranteed or federally-issued) student loans, for 20 years. After 20 years, all remaining principal and interest is forgiven. (Our students who had undergraduate federal student loans before October, 2007 have to pay about 10% for 25 years, but most current law students did not have such loans).
Graduates who perform 120 months of public service (at least 30 hours a week for any federal, state, or local government, or any 501(c)(3) organization) get forgiveness after 10 years instead of 20 years. (And Georgetown’s LRAP reimburses their 7%, if they earn less than $75,000, with a gradual phaseout of the Georgetown LRAP subsidy for those with incomes between $75,000 and about $130,000).
This is an entitlement program, created by regulations under authority granted by Congress in 1993, 2007, and 2010 and not exercised until now; no appropriations are necessary.