Even if you use the GI Bill to fund your education, you may still end up having some student loans to pay off after graduating. Today, two-thirds of college students graduate with at least $25,000 of college loan debt. After graduating, not only do you have to worry about trying to find a job in this depressed job market, you also have to worry how you will repay the debt.
Income-Based Repayment Plan
To that end, many graduates with student loan debt may be eligible for, but don’t know about, the Income-Based Repayment (IBR) Plan, which has been around since July 2009. Student loans that qualify for the IBR program include Direct Loans, such as:
– Stafford Loans
– Grad Plus
– Federal Direct Consolidation Loans.
To know if you qualify for the IBR or not, a good rule of thumb is, if you owe as much as you earn in a year, you most likely qualify for the repayment program. To be sure, you can use the calculator on the IBR Website. Once you qualify, your yearly payment is adjusted each year based on your earnings and family size.
Another great feature of the program is if you earn less than 150% of the poverty line for your family size, your owe nothing in a loan payment. And though your loan payments are zero, your payments count toward 25 years of forgiveness, meaning after you’ve made your required payments for 25 years, the rest of what you owe, if anything is forgiven.
Student Loan Forgiveness Act of 2012
Another program to watch is The Student Loan Forgiveness Act of 2012 legislation. If it passes, it will help students accelerate their loan pay-off. The plan introduced by Congressman Hansen Clarke (D-Mich.) has four key parts of which one part is the 10/10 Loan Repayment Plan.
Under the 10/10 Plan (which has has many similarities to the IBR program), loan payments are capped at 10% of the borrower’s discretionary income and the plan provides forgiveness after 10 payment years. Discretionary income is considered 150% of the poverty line for an individual or family.
After the borrower makes 120 payments, the forgiveness part of the plan kicks in. A payment is considered valid if it:
– was made under the 10/10 plan,
– equaled or was more than a 10/10 payment
– was $0 payment for the months the borrower was authorized an economic hardship deferment.
On or after the date of enactment, and after making 120 payments, borrowers can be forgiven up to $45,520 in principal and fees plus accrued interest. For borrowers who predate the date of enactment, there isn’t a forgiveness cap. Because prior payments can count, those who have been repaying their loans for 10 years or more could be eligible for forgiveness right away.
Both repayment programs are intended to help students reduce their student loan debt so they can start new businesses, start investing or buy a home – all important items to our economic growth.