Federal Student Loan Changes–Income Based Repayment
Starting on July 1st, 2009, students will receive a huge relief on their federal student loan payments. The program is called Income Based Repayment (IBR). The new program will set a limit on monthly payments that is a percentage of the student’s income. Specifically, IBR will cap monthly payments to 15% of the amount by which the student’s income exceeds 150% of the poverty line. So far, so good, right? However, doesn’t this just mean that students will be stuck making payments for the rest of their lives? Well, not exactly. IBR also has a provision that forgives all remaining federal student loan debt after 25 years of repayment. If you work full-time in a public service career, your remaining federal student loan debt is forgiven after just 10 years of repayment. To further explain IBR, here is a helpful video from IBRInfo.org:
Overall, I think this is a great change in the way student loans are repayed. Payments will now be manageable for graduates without adding a large number of years to the repayment period. Of course, I would like to emphasize my opinion that student loans should be avoided as much as possible. They are sometimes necessary (I have some student loan debt myself), but the more you can avoid them, the better off you will be. I hope this new repayment plan doesn’t encourage people to enter into more student loan debt than they would have otherwise. To see if you qualify for IBR, check out this IBR qualification calculator.
On a related note, July 1st is also the scheduled time for the annual interest rate adjustment. This year, interest rates are expected to drop. Because of this, right now might be a great time to consolidate your student loans! PoorerThanYou.com has a guest post up right now that does an excellent job explaining how you can save money by consolidating your student loans. Make sure to check it out! You can also see the Federal Government’s Loan Consolidation website for more information.
What do you think about the IBR program? Is this a helpful change or a problematic change? Let us know your opinion!
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Interesting program – I’m shocked that this is the first I’ve heard of it! According to the calculator, I do not qualify, but it could really help my sister out.
corrin´s last blog ..June 14 thru 17
Thanks for the link! I definitely appreciated Emily’s guest post on my site, because it alerted me to IBR, which is something I may (or may not) look into in the future. (I already changed my repayment plan a few months ago, and you’re only allowed to change it once a year.)
Thanks for posting the video too – it’s an awesome explanation of the new repayment plan!
Stephanie PTY´s last blog ..The Government’s Student Bailout: Federal Loan Changes
@corrin I think it is interesting too! I also do not qualify, but hopefully some people here will benefit from it.
@Stephanie PTY No problem! I loved her post and wanted to make sure people here saw it. I also like the video–it’s cute!
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The best thing for people wanting to go to education is to do what ever it takes to avoid private student loans. Those types of loans are high in interest and can literally ruin a person’s credit and way a life right off the bat. My 8k in private ballooned due to interest compounded monthly during school to 30k over the years in school. Choose a cheaper college and carefully choose a degree. Fill out the FASFA form and try to get grants to help pay for your education. Don’t waste your time and money on a worthless degree where you won’t be able to get a job when you finish with your studies. If you are already in large debts with student loans then pick up a second job if you have to so that you can knock down the principal quickly or you may never see the light of day. The government ones are much better because they offer repayment options and flexibility, private ones do not. Just my 2 cents ~Jayme