Income-Based Repayment Aids Students in Debt
For more information about income-based repayment, please see www.ibrinfo.org
Itís one of the federal governmentís best-kept secrets, and therein lies the problem.
Income-based repayment is a creative way to help borrowers ó in particular those not earning a lot of money ó to shrink their monthly student loan repayments. The program essentially caps monthly debt payment based on an appropriate percentage of income and family size. Payments are also stretched out over 25 years.
Although the U.S. Education Department program is 2 years old, only about 600,000 borrowers have enrolled. Thatís disappointing, given that federal officials estimate that far more of the 36 million borrowers who owe $1 trillion-plus in federal loans could qualify for this program. The Education Department has been trying to do a better job of getting the word out.
Last month, the department announced that it was working with the Internal Revenue Service on streamlining the application process so tax return data can be imported directly into the income-based forms. Colleges and universities will also receive additional materials so students will have a better understanding of their options.
Income-based repayment is available to anyone with federal student loans, such as Stafford, Direct and Perkins loans. If your financing came from whatís called private or alternative sources, such as a state agency, a nonprofit group, banks and other financial institutions, you do not qualify. Confused? Contact your financial aid office to find out who your lender is.
It should also be noted that federal loans already in default are not eligible.
Under income-based repayment monthly payments will be far less that what you would pay under the governmentís standard 10-year repayment plan.
For example, a teacher with one child who has $60,000 in student loan debt and earns $50,000, would pay $690 a month under the 10-year repayment plan. But under the income-based option, the monthly payment over 25 years would be $282, according to the nonprofit Project on Student Loan Debt.
There is a trade-off. The interest rate on the debt wonít change, so the longer repayment period means you may pay more Interest over the life of the loan. But if you pay like clockwork over 25 years and meet other requirements, any remaining loan balance will be erased. If youíre employed by a non-profit or government agency, you could be eligible for loan forgiveness after 10 years.
To apply, borrowers need to contact their loan service provider
directly. Processors need at least two months to crunch income data and fill out
the paperwork, so new grads should start investigating this option. For more
information, go to www.ibrinfo.org