July 6, 2009

New Income Based RePayment Plan for Student Loans

The government has introduced a new payment option for student loans that lets you pay lower payments if your income is low. The system is called Income Based Repayment (IBR) plan. You can read about the system on the IBR website. The new option that went into effect on July 1, 2009.

If you have a debt that is high relative to your income then you may qualify for the IBR payments. There are a few benefits of the IBR system.

1) Lower monthly payments. The payments will be lower than your normal 10 year payments.
2) Guaranteed interest payments. If your IBR payment is not enough to cover the interest then the government will pay the interest for you.
3) Forgiveness of principal after 25 years. If you make IBR payments for 25 years and still have a balance then the loan may be forgiven.

Lets look at a couple examples:

1) Say you have $30,000 in loans at 6.8% and your income is only $25,000. You're single with no kids. Using the calculator on the IBR site you can see that you would qualify for IBR payment option and the monthly payment would be only $110. By comparison the standard payment for a 10 year repayment schedule would be $345.

2) Consider if you've got income of $50,000 and loans of $25,000. You're family size is 2 people. Using the IBR calculator it will tell you that you do NOT qualify for IBR payments. Your loan balance is not high enough relative to your income.

If you have loans and your income is low by comparison then I'd check out the IBR site and see if you might qualify for the IBR plan.

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