So far, more than fifty million Americans have helped finance their college educations with help from federal student loans. As graduates grow nervous about their chances in a volatile job market, federal regulators hope that a new repayment program can ease budget burden. Working in public service jobs or for non-profit agencies can also lead to long term debt forgiveness, allowing government leaders to attract more talented college graduates.
How Income Based Repayment Works
Under previous special payment plans, students could suspend loan payments when faced with sudden illness or job loss. With the new income based repayment plan, government loan officers can base a graduate’s monthly payment on their monthly salary. By making regular, small payments under an IBR agreement, you can maintain your commitment to repaying government loans. If you maintain your loan in good standing and you meet certain criteria, the government may elect to forgive the balance of your loan.
For example, a lawyer working in a not-for-profit organization might earn about $45,000 per year after spending as much as $150,000 on career training. A typical law school graduate would ordinarily face student loan payments as high as $1,700 per month. However, under current guidelines, this student would only be required to make monthly payments of about $360 to pay back her student loan.
Because such a low payment would only cover part of the interest on the initial loan, the debt forgiveness aspect of an IBR plan can reward this student for her community service. After 25 years of regular payments, government regulators erase the remaining principal and interest. As the government wipes away more than a half million dollars in accrued interest, this graduate may choose to keep working or to enjoy a debt-free retirement. Plan participants working in certain government positions may qualify for debt forgiveness even sooner, after a period of just ten years.
How IBR Benefits Students
Income based repayment plans open up new opportunities for current and potential students to make college and career choices without focusing on the burden of hefty loan payments. Working adults in high-pressure industries may dream of stepping down to less stressful jobs that require specific career training. An IBR plan can help buffer the pay cut you may experience when shifting from a senior position in one field to an entry level job in another. If your circumstances change and you find yourself in a high-paying corporate job, your student loan payments should adjust to reflect your new salary.
Income Based Repayment Just One Option for Paying Down Student Loan Debt
IBR plans should become available during the summer of 2009 for graduates holding student loan accounts with the Department of Education or with a select private lender administered by the Federal Family Education Loan Program. Furthermore, debt forgiveness options are available only to students participating in the government’s Direct Loan program. Therefore, to get the maximum benefit from income based repayment options, financial advisors recommend consolidating your loans with the federal government.
The federal government isn’t the only source of assistance for students interested in community service jobs. Many colleges and universities offer special tuition waivers, grants, and other forms of financial aid for students who pledge to work in public interest jobs. Private foundations also raise funds to provide scholarships and stipends for students who plan to work in special niches of law, government, and fine arts. Teachers enjoy student loan forgiveness programs in many states, as do many military personnel. With help from multiple sources, you can enjoy a rewarding career in service to your community without the sacrifice of crushing student loan payments each month.
Publish date: February 16, 2009