Assistance with student loans from the income based repayment program.

The new federal government student loan assistance program, called income-based repayment, puts a maximum amount and limits the monthly loan payments to a fixed percentage of the borrower's monthly household income. The program is complicated not net every borrower can get help from it. However, you should look into it. It will help those who have federal student loan balances that exceed their annual income. People in this situation will almost certainly qualify for assistance. In most cases, your student loan payments could be reduced by about 50 percent.

What is the income-based repayment plan?

This program from most other options in that the other options that consumers have for loan payment plans are designed to repay the outstanding balance of the loans over a set period of time, say 15 years. Compare that to the income-based repayment option, which doesn't set your monthly payments based upon on a set payoff date. What will happen is that the monthly payments you need to make are based on the borrower's income. And the amount of your payment is determined by how much your income exceeds federal standards and guidelines for his or her family size and location of residence. What is comes down to is the less you earn in income, the less you pay for your student loans.

How much do I need to pay each month?

The key factor is your income, your total debt, the number of people in your household, and where you live. There are some basic guidelines for people on the very low end. For example, the Education Department says if you are single and earn only $20,000 per year, the most you'd need to pay is $47 per month. If you earn $25,000 per year, the required monthly payment would be $109. If you earn up to $35,000, the required payment on your student loans will be maxed out at $234.

Compare that to what could happen right now. Say you had $50,000 in student debt and are paying a 6.8% interest rate. Your current payment would be $575.40 per month under the standard repayment plan, regardless of your income.

 

 

 

If I pay less every month on my student loans, do I need to pay for more years and therefore end up paying more in total interest?

This is the case, and the answer is yes. Currently, interest accrues on student loan balances each and every month, and if as a result of this program you are paying less than the monthly interest that's accruing on your debt, the total balance of your loan could actually rise. However, this program is meant to help those who need the relief, and for that reason it is strongly advised that anyone who could afford to pay more on their loans should.

Does the income-based repayment plan mean I'll be paying on my student loans “forever”?

Definitely not. There is a condition to the plan that says that any borrower who has faithfully made payments for a period of time of 25 years can have his or her remaining student loan balance eliminated after 25 years. So, worst case, the longest you will ever need to pay is 25 years.

Another not very well know assistance program is that if you work for a nonprofit or government and continue to pay your debts under the direct loan program for 10 years, another federal program called Public Service Debt Forgiveness program could eliminate the balance off your student loan debt.

 

 

How do I know if I qualify and how much will my payments be?

The Federal Government Education Department provides users a Web-based calculator on its site that explains the repayment options for this and other assistance programs. They can also tell you what your monthly payments may be.

If my income is too high will I be be locked out of the program?

Not necessarily. Remember, the formula used to determine whether you qualify for income-based repayment looks at your monthly student loan payments versus your discretionary income. So, you can still get aid if you have a high income as you could have a substantial income and still qualify for assistance if you also have a lot of outstanding debt.

Are all student loans eligible?

Most, but not all. The federal program is only available for federal student loans that were originated under the Stafford, Grad Plus and any other federal student loan consolidation loan programs. Some other criteria include it does not apply to parent's loans for students, which are called Plus Loans, and it only applies to Perkins Loans if they're consolidated into the Direct Loan or Federal Family Education Loan programs. In addition, this new federal program does not apply to state loans, private loans, and any other loans or debts that are not backed by the federal government.

How do I apply for the income-based repayment program?

Assemble documentation, including your current loan information that needs to show your type of loans, balances, type of lenders and loans. Then contact your lenders and ask them about this program.