Are you or your spouse buried under a mountain of student loans? Have you been struggling to make the required monthly payments without killing your budget? The government has a new income-based repayment program that may provide some relief.
On July 1st the Department of Education put into effect a new government program that caps monthly student loan payments based on income, and forgives any remaining balance after 25 years. The income-based reimbursement (IBR) program is part of the College Cost Reduction and Access Act of 2007, which authorized the creation of a new income-based repayment plan for both Federal Family Education Loan (FFEL) and Direct Loan borrowers on all Stafford and graduate PLUS loans.
If you are enrolled in the IBR program, federal student loan monthly payments will add up to no more than 15% of your discretionary income. Discretionary income is calculated as the amount you bring in that exceeds 150% of the poverty line. The poverty line for 2009 is $10,830 a year for a single person (slightly more in Alaska and Hawaii); 150% of that would be $16,245. So, to give an example, if your annual income is $30,000, subtract $16,245 from $30,000. That leaves $13,755, and if you are in the IBR program your annual loan payments cannot add up to more than 15 percent of that amount. Multiply $13,755 times 0.15 and you will see that 15 percent of your discretionary income is $2,063.25 a year. Dividing by 12, your monthly payment would be $171.94, which may be significantly less than you are currently paying. There is a calculator at www.ibrinfo.org that can help you figure out the monthly payments for your specific financial situation.
The usual payment term for a federal student loan is 10 years. If you enroll in IBR you may take a lot longer than 10 years to pay off your loan, and you need to be aware that you will pay more interest if you take a longer time to pay. Once you get to the 25-year mark any amount remaining on the loan will be forgiven, but most people will have paid off the amount of their loan before 25 years. The big deal about IBR is that it gives you the financial flexibility of not having so much of your disposable income going to student loan payments each month. It’s up to you to decide if IBR is a good fit for you. As with most loans, though, the sooner you can pay off your student loans, the better, as less of your money will be spent on interest payments.
One special feature of IBR worth mentioning: people working in public service jobs – government work, teachers in public schools and universities, employees of public hospitals, and anyone working for a 501(c)(3) nonprofit – qualify for loan forgiveness after just 10 years, not 25.
For more information about IBR, visit IBRInfo, a service of The Project on Student Debt, at www.ibrinfo.org. To apply for IBR, contact your lender directly.
