Good News For Students In Debt

By Staff
July 1, 2009

Beginning today, college graduates will be able to take advantage of a new student loan repayment plan that can reduce loan payments based on their income and family size.

"We know today's borrowers are concerned about their ability to repay student loans in the current economic environment," said Education Secretary Arne Duncan in a statement quoted in The New York Times. "This new plan addresses the issue head-on by giving them the option of a reduced monthly payment tied to their annual income."

The new Income-Based Repayment (IBR) program limits loan payments to 15 percent of the difference between one's gross income and 150 percent of federal poverty guidelines. After 25 years of payments, the complete balance is forgiven. For example, a single person repaying a $30,000 student loan earning a $30,000 salary would pay only $170 a month, compared to the $350 a month that a typical 10-year loan might require.

Graduates who work in public service can qualify for an even more generous plan which allows loans to be forgiven after 10 years--a program which may further fuel interest in public service careers. The Education Department defines "public service" broadly, including those who work for government, public schools, public libraries and nonprofit organizations.

"These programs are such an enormous victory," said Christine Lindstrom, director of the higher-education access program at U.S. PIRG, a consumer advocacy group, who was quoted in The Times. "It enables all borrowers to be able to face their life circumstances and know there is some flexibility and responsiveness based on what life throws their way."

There are some important caveats: Borrowers must shift their loans into the federal Direct Loan program, so forgiveness is not available for loans extended by loan companies such as Citigroup or Sallie Mae.

Moreover, the program is only available to borrowers who are currently in good standing. The Public Broadcasting Service, for example, recently ran a story on a single mother from Baltimore struggling to repay a student debt of $70,000. Although she couldn't afford her current payments and seemed like a perfect candidate for IBR, she discovered that she didn't qualify because her loans were already in default.

Nevertheless, student aid experts say the plan is definitely worthwhile. "It's actually a very good plan for people experiencing financial difficulties," says Mark Kantrowitz, publisher of, who was quoted in The Wall Street Journal [from an article originally located at]. "It's better for you than a forbearance."

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