The Cost Reduction and Access Act, signed in 2007, authorized a new income-based repayment plan for federal student loans — a plan intended to lighten the heavy load of debt that weighs down some graduates for years on end, making it impossible to get ahead.
This Wednesday, anyone with a federal student loan can apply.
The program caps monthly payments based on income and forgives remaining balances after 25 years.
Those who work in public service jobs could have their loans forgiven after just 10 years.
Eligibility for income-based repayment, known as IBR, is determined by a person’s income and loan size. A calculator at
www.ibrinfo.org
can help borrowers determine their eligibility for the plan.
"It’s a way to borrow for college without going to the poorhouse," said Lauren Asher, president of the Institute for College Access & Success, a California-based nonprofit that runs the Project on Student Debt.
Advertisement
The income-based repayment plan applies to the Federal Family Education Loan, and to Direct Loan borrowers on all Stafford and graduate PLUS loans.
Monthly payments would amount to less than 10 percent of income for most of the estimated 1 million people expected to enroll, experts say. Payments would never exceed 15 percent of any income above about $16,000 a year (or 150 percent of the poverty level).
Those who earn less than $16,000 would not have to make any monthly payments.
IBR "can lower costs and provides light at the end of the tunnel" for such borrowers, said Asher. That gives borrowers greater financial flexibility to save for retirement, buy a home or even pay for their own children’s education, she said.
The program won’t be helpful for everyone.
In some cases, accruing interest could push the cost of the loan higher.
Those who can afford to do so might be better-served to pay off their loans faster, said Mark Kantrowitz, publisher of FinAid.org. And since loans are likely to be paid off within 25 years, the loan forgiveness aspect of the program won’t apply to most people.
Parent PLUS loans, the federal loans parents can take out to pay for their children’s education, are not eligible for the new payment plan.