| Earlier this year, the U.S. Department of Education | | | | much you would be expected to pay on your student |
| rolled out a new repayment option for student loan | | | | loans over the course of a year. |
| borrowers that could significantly reduce the monthly | | | | 4. Divide by 12 — the number you end up with is |
| payments on your federal student loans. | | | | what you would pay each month on your student |
| | | | | loans under the IBR plan. |
| As of July 1, 2009, federal student loan borrowers | | | | |
| have been able to apply for the new income-based | | | | If this final number is lower than your current monthly |
| repayment plan, which recalculates your monthly | | | | student loan payments, then you would qualify for the |
| student loan payments using a new income-based | | | | IBR plan. (If your IBR payment is higher than your |
| formula. | | | | current monthly payments, you would remain on your |
| | | | | current repayment plan.) |
| | | | | |
| Student Loans Eligible for Income-Based Repayment | | | | If your family falls below the poverty line, you would |
| | | | | owe nothing on your student loans for as long as your |
| As the name suggests, this new repayment option is | | | | family remains below that income line. |
| determined by a borrower’s income: Income-based | | | | |
| repayment sets a cap on your monthly student loan | | | | |
| payments based on your income and family size. | | | | The Public Service Student Loan Forgiveness |
| | | | | Program |
| The IBR plan was designed to provide a more | | | | |
| affordable repayment option for borrowers struggling | | | | If you’re making reduced student loan payments |
| to meet the monthly payments on their student loans. | | | | under the IBR plan and you also happen to work in the |
| | | | | nonprofit or public service sector, you may qualify for |
| “We know many graduates are concerned about | | | | an additional benefit, the public service loan forgiveness |
| their ability to repay student loans in the current | | | | program. |
| economic environment,” U.S. Secretary of | | | | |
| Education Arne Duncan said in the Department of | | | | Under this part of the IBR plan, your repayment |
| Education’s press release. “This new plan | | | | period could be capped at 10 years. The interesting |
| addresses the issue head-on by giving them the option | | | | part here is that the monthly payments on your |
| of a monthly payment tied to their income.” | | | | student loans aren’t adjusted so that you pay back |
| | | | | the full amount of your student loans in those allotted |
| The IBR option is available for most types of federal | | | | 10 years. Rather, after 10 years in a public service |
| college loans: Your Stafford loans, Grad PLUS loans, | | | | position, any balance you have remaining on your |
| and federal student loan consolidations are all eligible, | | | | federal college loans could be forgiven, provided you |
| as long as the loans aren’t in default. IBR is not | | | | were making each of your monthly IBR student loan |
| available, however, for federal parent loans (PLUS | | | | payments during those 10 years. |
| loans) or for consolidation loans that included a parent | | | | |
| PLUS loan in the consolidation. | | | | In other words, your federal student loans would be |
| | | | | absolved and considered repaid, regardless of whether |
| | | | | the loans were actually repaid in full or not. |
| Calculating Income-Based Student Loan Payments | | | | |
| | | | | Be aware, however, that the public service loan |
| The IBR plan revolves around three key factors: your | | | | forgiveness program is only available for Federal |
| income and family size, and whether you hold a job in | | | | Direct Student Loans. If you took out your federal |
| public service. Your income and family size are used | | | | student loans from a third-party lender (through the |
| to determine your monthly repayment amount. A public | | | | Federal Family Education Loan Program) rather than |
| service job may qualify you for a shorter repayment | | | | directly from the U.S. Department of Education, you |
| period and partial loan forgiveness. | | | | would need to consolidate your FFELP loans into a |
| | | | | Federal Direct Loan before you would be eligible for |
| You can easily calculate what your monthly IBR | | | | the 10-year forgiveness option. |
| payment would be in order to find out if you would be | | | | |
| eligible for the IBR plan: | | | | But you may still be eligible for partial forgiveness on |
| | | | | your student loans even if you don’t hold a public |
| 1. Find the federal poverty level guideline for a family of | | | | service job. After 25 years, if you’ve been making |
| your size, and multiply by 150%. | | | | IBR student loan payments for those years and you |
| 2. Subtract your annual adjusted gross income. | | | | meet certain other requirements, any remaining |
| 3. Multiply by 15% — the resulting number is how | | | | balance on your student loans may be cancelled. |