Starting on July 1, 2014 the federal Income-Based Repayment (IBR) program would allow existing student loan borrowers to reduce their monthly student loan payments from 15% to 10% of their income.
President Obama recently developed a proposal called “Pay As You Earn” is a revision of the current IBR program that will help recent graduates can reduce student loan payments to 10% of their income starting in 2012 and would assistance more than 1.6 million people. The “Pay As You Earn” will also make it easier to participate in the program and work to educate student loan borrowers on the program.
The IBR is a repayment plan that caps your required monthly student loan payments on the major types of federal student loans at an amount based on income, family size, and state residence and if the IBR payment is lower than your current student loan payment. If you are married and file jointly, your spouse’s income is considered for eligibility in the IBR program.
All Stafford, PLUS, and Consolidation Loans available through the Direct Loan or Federal Family Education Loan (FFEL) programs are eligible. Loans currently in default and Parent PLUS Loans are not eligible. The program may increase the length of the loan repayment and accrue additional interest over the life of the loan. The program is most helpful for recent graduates or those who make a modest income.
Student loan borrowers with multiple student loans are being encouraged by the Department of Education to consolidate their FFEL loans into the Direct Loan program. The terms and conditions of the loans would remain the same, and starting in January 2012, would allow borrowers to make only one monthly payment.
Borrowers who take advantage of consolidation may be eligible to receive up to a 0.5% reduction on their interest rate: a 0.25% interest rate reduction on consolidated FFEL loans and 0.25% interest rate reduction on the entire consolidated FFEL and Direct Loan balance.
Contact your student loan servicer to find out how to sign up for the IBR program. Provide your feedback to the Consumer Financial Protection Bureau and the Department of Education on the new “Know Before You Owe” project to create a financial aid disclosure form to help current and prospective college students better understand the type and amount of aid they qualify for and compare financial aid packages offered by different colleges which would outline their total estimated student loan debt, monthly loan payments after graduation and additional costs not covered by federal student aid.
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