New Federal Program Eases Bite of Repaying Student Loans

The government has rolled out a new program that pegs repayment of college loans to income: the Income Based Repayment Plan, or IBR. IBR applies only to direct federal loans or private loans subsidized by the government.

In other good news, new federal Stafford loans now have a lower interest rate of 5.6 percent, down from 6 percent. Congress has mandated that the rate drop to 3.4 percent by 2012.

Given the economic climate, when so many college graduates are struggling to find jobs before that first payment comes due, the launch of the Income-Based Repayment Plan (IBR) is especially welcome. It is meant to make monthly payments affordable by bringing them in line with your income and family size.

If you're a modest wager earner, then IBR will adjust your monthly payment to no more than 15% of your income. For some, it could be less, even nothing.

IBR would require someone earning $50,000 to make a maximum payment of $422 a month toward student loans. It would be $297 a month for someone earning $40,000; and $172 a month for someone earning $30,000. And so on.

But even these figures are subject to adjustment, because not only income, but family-size is taken into consideration.

If you earn less than $16,000 a year, for example, or have dependents, then your required payments could be zero.

If you manage to pay off your loan within 25 years, then great. You've saved yourself the added expense of accrued interest. If you don't pay it off, but have not gone into default, then your remaining loan balance will be written off.

If you have worked in public service jobs, then you could see your debt forgiven after 10 years.

Talk to your lender if you're interested in applying for the Income Based Repayment Plan. In the meantime, visit http://studentloansinkhole.blogspot.com and http://www.IBRInfo.org for more information.