Debt relief for student-loan borrowers
- Income-based repayment is a welcome relief for student-loan borrowers
The Department of Education is beginning a program to help students with debt relief. The department is allowing consumers to apply for a program that will cap monthly student loan payments based on income and forgive balances still remaining after 25 years. If students are working in the public service sector, their loans could be forgiven after just 10 years.
The program is called the IBR (Income-Based Repayment) program. It is determined by two things: the person’s income and the amount of his or her loans. The Department of Education is setting up a website, www.ibrinfo.org, to answer questions and help borrowers with the application process. The website should be available and fully functional in coming weeks. Lauren Asher, president of the Institute for College Access and Success, stated, “It’s a way to borrow for college without going to the poor house.”
The beginning of the program
This new Department of Education program comes from the Education Department’s College Cost Reduction and Access Act of 2007, which authorized a program catering to the incomes of borrowers at FFEL, (Federal Family Education Loan), and Stafford loan levels. In this new program, monthly payments are capped at approximately 10% of the borrower’s income and never exceed more than 15% of any annual income above $16,000. People earning under $16,000 are not required to make monthly payments.
The goal of the program
The goal of this program is to provide debt relief for people who have student loans and modest to low incomes. The IBR program stretches the payments over a longer period of time, thus bringing payments down. Although consumers won’t see savings throughout the course of the loan’s lifetime, they will have smaller payments to manage monthly without hurting their credit scores. Asher added, “IBR can lower costs and provide light at the end of the tunnel for such borrowers. It gives them a greater flexibility to save for retirement, buy a home or even pay for their own children’s education.”
Consumers must choose wisely
It’s up to consumers to do some homework, however, to see if this program is right for them. In some instances, the IBR program could push the cost of the loan to more than it would have been on the original payment plan. There are some accounts in which accruing interest increase the overall cost of the loan substantially. Also, since almost all student loans should be paid off before 25 years, this aspect of the program may not be beneficial to everyone.
Mark Kantrowitz, publisher of FinAid.org, stated that people can “save on interest costs more effectively by paying off loans faster.” Kantrowitz also stated that using the FinAid.org website can help consumers track their financial aid industry data to see if their payments are comparable to the current standard.
After approval
One additional note: If consumers have salary increases that disqualifies them for the program, they will be responsible for the cost of the loan and the additional interest accrued up to that point. But even then, the monthly payments could not exceed what they would have been under a standard repayment plan and consumers always have the option of paying off their loans faster.
The Department of Education is working hard to help consumers with student loans find some debt relief. The IBR program may be a good solution for consumers with unmanageable student loan payments. Some research and wise decision-making can help consumers bring their finances under control and find debt relief.
