Relief from student loan payments

Drowning in student loan debt? Starting July 1, there will be a new student loan program designed to help struggling grads make their payments.

1) Get the details

Starting next Wednesday, some college grads will be getting lower loan payments thanks to the government’s new Income Based Repayment Plan. This program calculates your monthly payments based on your income and your family size. So who qualifies? If you're a graduate with a Stafford, Graduate PLUS loan, or you have a consolidation loan made under either the Direct Loan or Federal Family Education Loan programs Direct Loans or a Federal Family Education Loan programs, you may qualify. But as a general rule of thumb, your debt must be 1.5 times more than your gross income. To calculate your eligibility, go to Finaid.org.
The Parent PLUS loan does not qualify for this program. The eligible loans can be new ones just entering repayment or loans that have been in repayment for years.

2) How it works

If you qualify for the Income Based Repayment program, your monthly payments will be pegged to how much you can afford each month. Typically your loan payments will be less than 10 percent of your monthly gross income. If you make 150 percent or less of the federal poverty line (which is about $16,245 for a single person) you’ll pay nothing until your salary increases.

So, the people who will really benefit from this program are grads saddled with student loan debt who can’t find jobs; grads that have a lot of debt compared to income; and people who are going into public service. That’s because if you’re in this plan, you’re eligible for the Public Service Loan Forgiveness Program that wipes out your debt if you’ve worked full time in the public sector for 10 years. And Income Based Repayment also will forgive student-loan debt that remains after 25 years of making payments.

BUT...there are downsides to this program. You pay more in interest over the life of your loan. A reduced payment in Income Based Repayment usually extends how long you have to pay your loan back.

3) Contact your lender

Talk to your lender if you think you’re a candidate. The lender may ask for a copy of last year's tax return. More likely they will have you complete IRS Form 4506-T to have the IRS send them a tax transcript of your federal income tax return as filed with the IRS, according to Mark Kantrowitz of Finaid.org. Your lender will look at the taxes you filed last year. So, if you’ve lost a job since then or endured some other financial hardship, make sure you let your lender know.

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