Help for Those with Student Loan Debt

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Wed, Jun 24 - 5:43 pm EDT | 5 years ago by
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The government aims to help those with a great deal of student loan debt. In addition to arranging plans with your lenders, or applying for forbearance, the government will begin — on July 1 — a new program that helps you refinance your student loans, depending on your income. It is called the Income Based Repayment Plan.

Who qualifies for the new student loan debt program?

Those with lower incomes qualify for this student loan debt program, which allows you to make payments that are around 10% of your monthly gross income. In order to qualify, you have to have student loan debt of at least 1.5 times your your gross income. (This means I don’t qualify.) The loans included in the plan can be undergrad or grad. Professional job training certifications are also included.Your Stafford, Grad PLUS or consolidation loan of these programs are eligible. A parent PLUS Loan is not eligible. You can include old loans in this program.

For those who are having a hard time finding a job, or for those with a lot of debt relative to their income, this might be an elegant solution, one that works better than forbearance or deferment. One of the bonuses is that if you go into public service, what is left after 10 years is forgiven. If you choose the Income Based Repayment Plan, and you still owe after 25 years, that remainder is forgiven as well.

Here is an example chart of what you might pay, depending on your income and the size of your family (source: studentaid.ed.gov):

student-loan-debt-repayment-plan

Drawbacks to the Income Based Repayment Plan

As you might guess, there are some downsides to this plan. While it can make meeting your obligations a little bit easier, there is a price to pay — in the form of increased interest paid over the life of your student loan debt. With a reduced payment, you are spreading your obligation out over a longer period of time. This means that you will probably pay more interest over the long haul. Most student loans are repaid over a period of 10 years, so that means extending out 25 years could mean a great deal of difference, even if you get the remainder forgiven.

You should also realize that you will have to submit annual documentation. This means that you have to maintain a low income in order to renew at your low income payments. If you fail to provide documentation, your payments will return to a standard repayment amount. Most lenders will probably send you reminders about renewing your documentation.

For those having difficulties due to the economy, this might be just the thing. However, it is a good idea to pay more when you are able to. Extra payments toward the principal should begin as soon as you can manage. In the end, the student loan industry is making money off of you, and the interest is money you could be using for yourself.

What do you think of the Income Based Repayment Plan for student loan debt?

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  • http://toughmoneylove.com Mr. ToughMoneyLove

    I just hope that this change in the repayment rules does not encourage even more students to add even more debt to their ledger.

    Thanks for the link.

  • Pingback: Help for Those with Student Loan Debt : Yielding Wealth - Personal … | Money Blog : 10 Dollars : Money Articles.

  • http://none jr

    The USA shouldn’t build an “industry” around education. Young people should not be in debt even before they even enter the work force; debt shouldn’t be the price for entering a profession or bettering oneself through higher education. U.S. citizens pay enough taxes that just paying book & lab fees, being able to support ones self during University should be enough of a hardship for any one entering the system of higher edication such as college and university.

  • Miranda Marquit

    I agree Tough Money Love! It seems as though there are way too many instances of making debt easier to get and swallow. And this isn’t going to make things any better.

    Thanks for sharing, jr! An entire industry has been built up around education, and one that is quite profitable for a number of people. It really is too bad that we’ve reached the point to where so many experience crushing debt just for the chance at a better job.

  • andrew

    The current loan consolidation program does not permit refinancing once consolidated. Many people are paying in excess of 8% and are FORBIDDEN to refinance. Anyone who is in opposition to refinancing and reform of this situation is a die cast Republican terrorist.

  • Teresa

    I’m curious if anyone knows if the IBR Plan is only for federal loans. Would a loan from Sallie Mae be eligible for this and how would a person go about getting it going? The loan has not been consolidated and there are 3 federal loans currently in deferment.

  • Miranda Marquit

    I don’t know if I’d go so far as to say “terrorist”. At any rate, this program is something that is going forward, and that should help many people — especially those who are having trouble making their payments. This should allow them to restructure their loans so that they are affordable.

  • Miranda Marquit

    I believe it’s Federal loans. If you have a Stafford through Sallie Mae, it would work. You can get more info here: http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp