In 2007, the College Cost Reduction and Access Act was passed. This legislation addressed many issues concerning student loan payments. Part of this includes Income-Based Repayment (IBR) which became available on July 1st of this year. Income Based Repayment is available for federal student loans and the Direct Loan program and is designed to save people from student loan default.
The intent of this plan is to help ensure repayment through making the payments affordable. This plan targets people with low income and those who are going through difficult financial times. It is also specifically designed to help people who are planning to go into public service that will face a lifetime of low income. The idea is to give them the extra cash that they need to live on.
How?
Under this plan, monthly payments will be capped as a percentage of the borrower’s income, taking into consideration the size of their family. Payments will be adjusted once a year, and whenever income or family size changes. For most borrowers, this will mean that the maximum about of their income that can be eaten up by student loan payments is 15%.
To find out if you qualify, you can check out this Income Based Repayment Calculator .
Obviously, if you qualify, your payment will be considerably lower that it would be under a standard 10 year repayment plan. (Keep in mind, the less you pay, the more interest you will pay over the long haul.)
Believe it or not, if your required payment doesn’t cover the interest that is accruing, the government will pay the interest if your loans are Subsidized Stafford Loans for up to three years.
If you follow Income Based Repayment for 25 years and meet certain other qualifications and your loan still isn’t paid off at the end of 25 years, your loan will be canceled!
There is also a Public Service Loan Forgiveness Program. Under this program, if you make 120 payments through IBR and you have been in a public service job the entire time, your loan balance could be canceled.
If you are already in default, you will not be eligible for this program. However, you can consider student loan rehabilitation.
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Excellent information. Income-based repayment plans provide a HUGE relief for student, or ex-students to pay back their student loans while they get their start in the work force.
Any kind of stress relief a government plan can provide for people is fantastic.
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