With graduates entering a job market that is the worst in a generation and with 2/3 of these same graduates saddled with student loans averaging over $22,000, there is some good news on the horizon. Income-based repayment will be a new option for federal loan borrowers starting on July 1, 2009. Here are the features of this program, based on a story today in the USA Today:
- Borrowers who select this option will never have to spend more than 15% of their discretionary income — an amount based on federal poverty guidelines — on student loan payments
- Most who qualify for the program won't spend more than 10% of their income on student loans
- However, any amount owed after 25 years of qualifying payments will be forgiven.
- Those whose income falls below 150% of the poverty level won't be required to make any payments
Here was some other useful information about the program that I found on IBRinfo.org:
- What types of loans are eligible for IBR?
- Your loans include Stafford, Grad Plus, and federal Consolidation loans that do not include Parent PLUS loans. Perkins loans are eligible if you consolidate them into a federal Guaranteed (FFEL) or Direct loan. IBR is not available for Parent PLUS loans.
- Are only those loans that enter repayment after July 1, 2009 eligible?
- No. Any federal loans described above which were borrowed before or after IBR took effect are eligible.
- What are income requirements in order to be eligible for IBR?
- To enter IBR, you have to have enough debt relative to your income to qualify for a reduced payment. That means it would take more than 15 percent of whatever you earn above 150% of poverty level to pay off your loans on a standard 10-year payment plan. Use our calculator to see if you're likely to be eligible.
- How is the loan payment under IBR determined?
- If you earn below 150% of the poverty level for your family size, your required loan payment will be $0. If you earn more, your loan payment will be capped at 15 percent of whatever you earn above that amount. Except for the highest earners, that usually works out to less than 10 percent of your total income.
- What if the monthly payment under IBR does not cover the interest on the loans?
- In some situations, your reduced payment under IBR may not cover the interest on your loans. If so, the government will pay that interest on your Subsidized Stafford Loans for your first three years in IBR. After three years and for other loan types, the interest will be added to the total amount you owe. While your debt may grow if your affordable payments are low enough, anything you still owe after 25 years of qualifying payments will be forgiven.
- How to get started in the program?
- Contact your lender directly.
There is also a useful calculator on this site to help determine whether a borrower might qualify for IBR: http://www.ibrinfo.org/calculator.php
Related articles:
- Hope for grads deep in debt (Chicago Sun-Times)
- Crushed by student loans; help is coming (The Street.com)
- Student loan repayment options to expand (Credit.com)
- Program offers potential forgiveness for student loans (Spartan Daily)
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