Changes to the Income Based Student Loan Repayment Program

Jul 19th, 2010 @ 6:06 AM by Debbie Dragon

As of July 1^st, there are some changes that you should know about if you are a college graduate that is carrying federal student loan debt. Beginning last year income based repayment became available for student loan holders. The program capped the amount loan holders had to pay, depending on the amount of their loan and their income. Your monthly payment, if eligible, is no more than 15% of your income. If you make $16,000 a year or less you can completely defer your payments. The program was put in place to help keep loan payments manageable for those loan holders who do not have high incomes.

Another perk of the program is that after 25 years any remaining balance is forgiven and if you hold certain public service jobs, the remainder of your loan will be forgiven after ten years. If your salary does go up, your monthly payment will go up, but your payment can never go above what it would have been if you paid back your loan over the typical ten year payback period.

While just about every federal student loan qualifies for the program, there were a few people who did not really benefit. The program has now improved for some borrowers. Married couples and those people who had deferred their loans will now also benefit from the income based repayment program.

Married couples were basically penalized and had much higher payments than those that were single. Previous to July 1^st, married couples were assessed individually and for those filing joint tax returns, payments were determined by the joint income. Many times this meant that their payments were double what a single person’s payment was for the same income. Lenders will now look at the total student loan debt and compare that to the couple’s total income to determine a total student loan monthly payment.

Another change is for those loan holders who deferred their loan and now have a higher balance to pay off. Loan payments on the income repayment plan will now be computed by looking at the loan balance at the time repayment started or the current loan balance, whichever is highest. This will make the payment even more affordable for these people.

While this program does make payments more affordable, it is important to note that the less you pay each month, the more you will owe in the end due to accrued interest. If you can pay your loan off sooner, you will better off doing so.

For more information and to calculate your monthly payment visit http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp.