Most student loan borrowers do not realize that on July 1, 2009 a new, more lenient payment plan was made available for those people having trouble repaying their federal student loans.
The income-based repayment plan is designed to get lower monthly payments for those people most in need of help in repaying their college school loans. Monthly payments are based on adjusted gross income and family size. Any debt remaining is forgiven after 25 years or after 10 years for people who work in the public or nonprofit sector.
You may qualify for this new plan if you are unemployed, have a low income, or have a very large debt. There is no income limit under this program. People earning 6-figure salaries could qualify if they owe more than they earn in a year.
The income-based repayment program works by capping your payments at a level you can afford. If you earn less than 150 percent of the poverty level for your family size, your payment will be zero. If you earn more, your monthly payment will be capped at 15 percent of your annual income that exceeds 150 percent of the poverty level, divided by 12. If your student loans qualifies and your payment under this formula is less than what you pay under a standard 10-year repayment schedule, you will qualify for income-based repayment.
This new payment plan is available on Stafford loans (subsidized and unsubsidized) and Grad PLUS loans. These federally guaranteed student loans are issued by the Department of Education under the direct lending program and by private banks and lenders under the Federal Family Education Loan Program (FFELP). Parent PLUS loans, private student loans, and college loans in default do not qualify for this program. Stafford and Grad PLUS loans that have been consolidated will qualify, as long as they were not combined with Parent PLUS loans. Check with your lender to see if your loan qualifies.
If your student loan qualifies and you have your payments reduced, any unpaid principal and interest will be added to your student loan balance, but the accrued interest will not compound. If you have a subsidized Stafford loan, the government will pay any unpaid interest for up to three consecutive years.
In this new program, anyone in repayment under this plan for 25 years, who also meet other certain requirements, will have any remaining debt forgiven. The extinguished debt will be taxed as income. For those people working in the public sector or who have a nonprofit job for 10 years or more, their remaining debt could be wiped out after 10 years. In this scenario, the forgiven debt will not be taxed as income.
As your income or family size changes, your payments will adjust. If your income rises, your payment will increase, but it will never be higher than what you would be paying in a standard repayment plan. You can also switch to another repayment plan at anytime.
The only real negative to the program is that you may end up paying more interest over time, but you get the relief you need right now. If your financial hardship seems temporary, you may be better off getting an economic hardship deferment. Borrowers with a long-term need, however, should consider this new income-based repayment program.
Student Loans: New Payment Plan to Help Save Money
Posted by College Spot in College Finance
Most student loan borrowers do not realize that on July 1, 2009 a new, more lenient payment plan was made available for those people having trouble repaying their federal student loans.
The income-based repayment plan is designed to get lower monthly payments for those people most in need of help in repaying their college school loans. Monthly payments are based on adjusted gross income and family size. Any debt remaining is forgiven after 25 years or after 10 years for people who work in the public or nonprofit sector.
You may qualify for this new plan if you are unemployed, have a low income, or have a very large debt. There is no income limit under this program. People earning 6-figure salaries could qualify if they owe more than they earn in a year.
The income-based repayment program works by capping your payments at a level you can afford. If you earn less than 150 percent of the poverty level for your family size, your payment will be zero. If you earn more, your monthly payment will be capped at 15 percent of your annual income that exceeds 150 percent of the poverty level, divided by 12. If your student loans qualifies and your payment under this formula is less than what you pay under a standard 10-year repayment schedule, you will qualify for income-based repayment.
This new payment plan is available on Stafford loans (subsidized and unsubsidized) and Grad PLUS loans. These federally guaranteed student loans are issued by the Department of Education under the direct lending program and by private banks and lenders under the Federal Family Education Loan Program (FFELP). Parent PLUS loans, private student loans, and college loans in default do not qualify for this program. Stafford and Grad PLUS loans that have been consolidated will qualify, as long as they were not combined with Parent PLUS loans. Check with your lender to see if your loan qualifies.
If your student loan qualifies and you have your payments reduced, any unpaid principal and interest will be added to your student loan balance, but the accrued interest will not compound. If you have a subsidized Stafford loan, the government will pay any unpaid interest for up to three consecutive years.
In this new program, anyone in repayment under this plan for 25 years, who also meet other certain requirements, will have any remaining debt forgiven. The extinguished debt will be taxed as income. For those people working in the public sector or who have a nonprofit job for 10 years or more, their remaining debt could be wiped out after 10 years. In this scenario, the forgiven debt will not be taxed as income.
As your income or family size changes, your payments will adjust. If your income rises, your payment will increase, but it will never be higher than what you would be paying in a standard repayment plan. You can also switch to another repayment plan at anytime.
The only real negative to the program is that you may end up paying more interest over time, but you get the relief you need right now. If your financial hardship seems temporary, you may be better off getting an economic hardship deferment. Borrowers with a long-term need, however, should consider this new income-based repayment program.