Income-based repayment for student loans: Consumer Sundays
Income-based student loan repayment plans are on the way to help some recent graduates make it through this tough employment season, according to Eileen Ambrose's column this week.
This will be good news for those who are "upside-down" in their student loan debt --- a term which usually refers to people who owe more on their home than the property is worth. I'm arbitrarily going to assign that term to folks who owe more in student loans than they earn in a year, unless we get some better suggestions in the comments below.
But an estimated 1 million people with federal loans whose debts exceed their annual pay could be eligible, particularly people with low-paid public service jobs.
Here's how it works:
"Under the plan, if you make below 150 percent of the poverty line for your household size, your payment would be zero. That threshold works out to be $16,245 this year for singles in Maryland and most other states; $33,075 for a family of four.Unfortunately, this assistance is available only to folks with federal loans --- no private loans or parent PLUS loans. For more details and caveats, check Eileen's column. To find out if you're eligible, try the calculators at ibrinfo.org and finaid.org.
"You still owe the money," possibly along with accruing interest even if payments are zero, says Bob Murray, a spokesman for USA Funds, the nation's largest loan guarantor. If your income later improves enough, payments will kick in.
If your income is above that income threshold, your monthly payment under the Income Based plan won't exceed 15 percent of your discretionary income."
Comments
I am very glad to see this happening. Of course, I am one of those fairly recent college grads (3 years ago), who has over $50k in student loan debt, and has a local government job paying only $40k a year, with no immediate signs of improvement. Based on the calculator i've seen on finaids website, I will save over $100 a month. I'm not against paying back the money I borrowed, but why are my rates locked in at over 7% with a federal loan, with no abilit to "refinance" to the 2% loans being offered today. This seems like a fair way to allow me to pay on the loans in a manner I can afford.
Ben, glad this is going to work out for you! Tell your friends. --- lfk.
Posted by: Ben | June 16, 2009 8:37 AM
Here's a short animated video that explains income-based repayment:
http://www.youtube.com/watch?v=SpJhC-2i6gI
Margaret, that's really funny ... -- lfk.
Posted by: Margaret Crandall | June 16, 2009 12:37 PM