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Tags: finance, student loans, relief in repaying your student loans
 I was rummaging through my desk the other day doing some minor cleaning when I came across some re-payment stubs from when I was still paying off my student loans from college. Looking at those stubs I realize that same as back then, now more than ever, a greater number of college students are taking out student loans in order to cover their college expenses.
As a result when they graduate from college they find themselves with no job to latch on, and because of the current state of the economy, with minimal prospects of ever finding even a decent paying one. At the same time they carry the burden of thousands of dollars in student loans.
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The scary thing is this scenario won’t get better anytime soon. As I said, most fresh graduates will be facing an ever shrinking job market while at the same time carrying $22,000 to $100,000 in educational loan balances. And it’s not just the students that are borrowing. More and more parents are also taking out federal PLUS loan to help their children through college, much like my friend Cindy who has a son in a university in the east.
Both she and her husband Jack borrowed money for their son Matthew. The thing to consider is that depending on the type of student loans one gets, you may need to begin repaying them almost immediately after you graduate—even as soon as six months after. You can get a payment deferment due to economic hardship, but it’s only good for three years and at the same time interests will still be accruing resulting in an even bigger balance once you start repaying again.
However, it’s not all bad news—some relief in repaying your student loans will start tomorrow, July 1, 2009. This is because the income based repayment plan or IBR will take into effect. This is a new repayment program run by the Department of Education which caps monthly payments based on your income and the amount you borrowed.
Basically, the IBR is another alternative to the income sensitive repayment plan (ISR) and the income contingent repayment plan (ICR). It’s based on a sliding scale, so that means if your income is low, the lower the percentage cap. If your income falls to 150% of the poverty level based on the number of family members you don’t pay anything.
This means that for most borrowers their monthly payment will be less than 10% of their gross income. As an example a single person who makes only $40,000 per annually will only pay 8.0% of their income. At the same time a person in a four person household who make the same amount of money annually will only be paying 2.6% of their income.
But if the income of our two examples increases, say to $60,000 per year, then the percentage will also increase to 10.9% and 6.7% respectively. Also, it will forgive balances on your student loans after 25 years, or 10 years if you are working in the public service. However, this may not work for you.
In some cases the interest on your student loans may make your balance higher. Also, for the most part, most loans are payable within the 25 year time frame so the forgiveness aspect may not kick in. The IBR only covers student loans that are in the Direct Loan program—federal Stafford, Grad PLUS, or consolidation loan ones.
If you’re in the Guaranteed (or FFEL) loan program you need to transfer to the direct one in order to use the IBR plan. Unfortunately, the IBR plan is only available to federal loans—your private borrowings are ineligible. But even if you borrowed from a federal source you may still be ineligible to participate if you defaulted in your loan.
This means if you did not make a payment for nine months then it is considered a default.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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