The income-based repayment plan (IBR) will be available on July, 1 2009 to graduates with Direct or Guaranteed loans. Repayment on private loans or Parent Plus Loans is not included. IBR will figure monthly loan payments using a sliding scale based upon income and family size. Based on the required annual applications, some individuals will not need to make any monthly student loan payments for a year at a time. After 25 years of repayment on the IBR, the borrower can apply to have the remaining principle and interest completely forgiven.
As part of the IBR plan, The Public Service Loan Forgiveness program will provide additional assistance to individuals employed at non-profit organizations such as: charities, service organizations, military or government service. Those employed at an approved non-profit can request to have their student loan balances forgiven after only 10 years of participation in the IBR program.
“Many of these jobs serve vital public interests but carry conservative salaries and benefits. Forgiveness of student loan debt in 10 vs. 25 years will encourage qualified people to enter these fields,” said Michaela Harper Community Education Director with Credit Advisors Foundation.
The savings from an IBR plan add up fast. A single graduate with no dependents who has $16,000 in student loan debt is expected to pay $184 a month. On an IBR plan, if that graduate’s Adjusted Gross Income (AGI) is $25,000 annually, his/her monthly payment will be $110. This is a monthly savings of $74 and a total of $888 saved over the course of a year.
The IBR plan may not bring much relief to married borrowers. Each borrower’s eligible loans are considered as one repayment plan but their income is considered jointly. If a couple each had a $16,000 in student loans and a joint AGI of $50,000 ($25,000 each) the IBR repayment amount would be $352 on each borrower’s loans for a household total of $704. The US Department of Education admits that this double counting is unfair. They will revisit the rule later; however, any revisions made will not go into affect until July 2010.
Harper offers these tips to increase benefits received from the IBR plan and the Public Service Loan Forgiveness program:
- Those who are starting school should limit the amount of private student loans borrowed. Private student loans do not qualify for this program.
- Anyone currently paying student loans should organize all their loan documentation. Make sure you know what kind of student loan debts you have and collect proof of your payment history. This will help you apply for the IBR plan and the Public Service Loan Forgiveness program when they become available.
- Check to see what your student loan payments could be using an IBR plan at www.IBRinfo.org.
- If you do qualify for and receive the payment reduction you should examine your budget. Allocate the student loan savings to the portion of your budget that will help you the most. Have you built your emergency fund? Use it to keep up on your private loan payments.
Obtaining higher education is a valid reason to go into debt. Unfortunately, many borrowers acquire more student loan payments than they can afford with the income they will receive in their chosen field. IBR will ease the student loan burden for Americans in careers that serve the public good.