New Relief for Federal Student Loan Borrowers
Americans struggling to pay off hefty federal student loans may be able to drastically reduce their monthly payments thanks to the new Income-Based Repayment (IBR) plan from the U.S. Department of Education.
The new IBR program helps student loan borrowers by adjusting their monthly payments based on income and family size. Persons with high student loan debt relative to their income are likely to be eligible for the program, which may reduce or even eliminate their monthly payments.
“We know many graduates are concerned about their ability to repay student loans in the current economic environment,” said U.S. Secretary of Education Arne Duncan in a press release. “This new plan addresses the issue head on by giving them the option of a monthly payment tied to their income.”
In an example offered by the Department of Education, a person with student loan debt of $25,000 at 6.8 percent interest would have a monthly payment of $288 under the standard 10-year repayment plan. If the borrower were single with no dependents and had an Adjusted Gross Income (AGI) of $30,000, the monthly payment would drop to $172 per month, a reduction of $116 per month, or 40 percent under the IBR Program.
While individual lenders determine eligibility for the IBR program, borrowers can use a new online IBR calculator to estimate monthly payments and eligibility. To apply for participation in the IBR program, borrowers should contact their lender.
Student loan borrowers should also be aware that the reduced payments offered under the IBR program may result in longer repayment periods and increased interest charges.
Also See:
Student Aid: Sources of Funding and How to Apply
Economic Stimulus Help for Students and Teachers
Comments
This plan’s monthly payment formula is readjusted every year based on income. It is possible, as income grows, for these payments to actually be higher than the ones under some of the other plans (although not the standard one).