Student Loans Made Easier

Are you having problems with your student loan? If so, there's good news for you. Starting July 1, you may choose a new, more lenient, more manageable payment plan to help you get out of debt.

What Is the Income-Based Repayment Program?

This program is called the income-based repayment scheme. It will result in smaller monthly payments as compared to the existing program for troubled borrowers called the income-contingent repayment. It sets your monthly payments based on the adjusted gross income of your family as well as your family size. Any unpaid principal and interest will be added to your total loan amount, but any outstanding debt will be wiped out after 25 years. If you're working in the non-profit or public sector, the time it takes before your debt is written off will be further shortened to only 10 years.

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Who Qualifies for this Program?

You could qualify for this program as long as you're unemployed, get a relatively low salary or have a rather large debt. What exactly qualifies as a large debt? Large debt is classified as any loan that is more than your annual income. The great thing about this scheme is that there isn't any income limit - you could qualify for the program even though you earn $100,000 as long as you owe more than what you earn annually.

How Does the Program Work?

Aside from not having any income limit, the program also has a payment cap or limit to your monthly payments to ensure that you don't have to pay more than you can actually afford.

Here's how the payment cap work. Find out the assigned poverty level for the size of your family in your state (note that the poverty level is a bit higher in Hawaii and Alaska). If your current salary is less than 150% of that, then you don't have to pay anything under the income-based repayment scheme. If your salary is higher than that, your monthly payment will be capped or limited to 15% of the differential between your annual income and 150% of the poverty level, divided by 12.

For example, if you're single and you earn less than $16,245 annually (150% of the poverty level for most states), then you don't have to pay anything regardless of how big your debt is. If you earn $30,000 a year, you would have to pay no more than $172 monthly.

If your monthly payment using this formula is less than what you're currently paying under the standard repayment schedule for 10 years, then you can apply for the income-based repayment scheme. However, loans that are already in default do not qualify for this program.

This revolutionary payment plan is currently available on both subsidized and unsubsidized Stafford student loans and the Grad PLUS loans. As you may notice, these Department of Education-issued loans are completely guaranteed by the government under its lending program, and also by lenders such as Sallie Mae. Parent PLUS loans and private loans are not included in this program.

In order to see whether your loan qualifies for the income-based repayment scheme, check directly with your lender. GP

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