Student Loans

Income Based Repayment Now Available for Your Student Loan!

by Vincent Polisi on September 1, 2009

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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Student Loan Rehabilitation

by Vincent Polisi on August 28, 2009

Student Loans can be one of the most difficult credit issues you will face.  If you have fallen behind on your student loan payments, you probably already know that it is one of the most difficult debts to deal with.  Unlike other debts, bankruptcy laws are such that student loans are not dis-chargeable in a bankruptcy.

Additionally, the IRS will likely take any tax refund that you are due and send it to the Department of Education until your loan is paid in full.  (By the way, if this happens to you and you want to challenge it, you can go to www.studentloanborrowersassistance.org to learn more)

The good news is that the government offers you the ability to rehabilitate your student loans!

To do this, you will first need to call your lender and let them know.  They will set an acceptable payment schedule up for you.  Then you will need to make between 9 and 12 payments on time.  (Don’t slip up – they used to offer this as often as you needed it, but now it is a one shot deal!)

Once you have done this, your loan will no longer be considered in default and the default status will be completely deleted from your credit file.  Some lenders will offer to delete the negative history in entirety.  If they do, MAKE SURE YOU GET THIS IN WRITING.  Lately, I’ve been hearing of people that were promised this but once the 9-12 month period was up have been having difficulty getting what they were promised.

Other benefits of rehabilitating your loan include that you will regain eligibility for loan benefits such as deferment and forbearance.  (make sure you use this if you are ever at risk of falling behind again) Additionally, your wage garnishment ends and the IRS will no longer take your tax refund.

It is important to note that most student loans are not discharged in a bankruptcy.  So, even if you have filed for bankruptcy, it is important that you rehabilitate your student loans.  Not doing so can make it very difficult to establish after bankruptcy credit – even something that is typically easy to get like credit cards after bankruptcy.  In fact, having outstanding student loans will make it impossible to get mortgage loans after bankruptcy.

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