| It’s not an easy time to be graduating from college | | | | income-based repayment. |
| with student loans. With the unemployment rate | | | | Subsidized Interest and Student Loan Forgiveness |
| soaring toward 10 percent and the average starting | | | | For those borrowers who hold subsidized student |
| salary for college graduates down 2.2 percent this | | | | loans or a federal consolidation loan that included |
| year, student loan borrowers — whose average | | | | subsidized Stafford loans or Perkins loans, the |
| debt from student loans tops $22,000 — are now | | | | government will cover any unpaid interest on those |
| having an even tougher time affording their student | | | | subsidized loans (or on that portion of a student loan |
| loan payments. | | | | consolidation that’s comprised of subsidized loans) |
| The good news? Starting July 1, 2009, graduates with | | | | for the first three years that a borrower is in |
| federal college loans may be able to qualify for a new | | | | income-based repayment. |
| government program that can reduce the monthly | | | | The longest that a borrower can remain on the |
| payments on their student loans based on their income. | | | | income-based repayment plan is 25 years. After 25 |
| Income-Based Repayment for Federal Student Loans | | | | years of income-based payments, the government will |
| The income-based repayment program, created by | | | | forgive any remaining principal and unpaid interest — |
| Congress in 2007 as part of the College Cost | | | | although borrowers should note that under current tax |
| Reduction and Access Act, will cap a borrower’s | | | | law, this forgiven student loan debt would be taxable. |
| monthly student loan payments at a percentage of her | | | | Borrowers who are employed full-time in qualifying |
| or his income, when the borrower’s income is at | | | | jobs in the public service sector may have their |
| least 50 percent higher than the current federal | | | | remaining student loan debt forgiven after just 10 |
| poverty line for the borrower’s family size. | | | | years in the income-based repayment program, and |
| These income-based student loan payments will be | | | | this forgiveness would be tax-free, thanks to a ruling |
| calculated as 15 percent of the amount by which a | | | | from the U.S. Treasury last year. |
| borrower’s adjusted gross income exceeds 150 | | | | Qualifying for Income-Based Repayment |
| percent of the poverty line. | | | | To find out if you qualify for income-based repayment |
| (For individuals, the 2009 poverty line is $10,830 in all | | | | on your federal college loans, you’ll need to contact |
| states except Alaska and Hawaii. The complete | | | | your lender and provide information about your financial |
| federal poverty guidelines for 2009are available on the | | | | situation — you’ll need to demonstrate “partial |
| website of the U.S. Department of Health and Human | | | | financial hardship,” as defined by federal regulations. |
| Services.) | | | | Only federal Stafford and Grad PLUS student loans in |
| For example: 150 percent of the current individual | | | | good standing, along with consolidations of these |
| poverty line of $10,830 is $16,245. If a borrower’s | | | | college loans, are eligible for income-based repayment. |
| annual adjusted gross income is $25,000, the monthly | | | | Federal Perkins loans are eligible only if they’ve |
| payments on her or his eligible student loans would be | | | | been included in a federal student loan consolidation. |
| capped at $109.44 — 15 percent of the difference | | | | Other college loans are ineligible: |
| between $25,000 and $16,245, divided by 12 months. If | | | | 1. Private student loans. The income-based repayment |
| a borrower’s annual adjusted gross income is | | | | program applies only to federal student loans. If |
| $40,000, the monthly payments on any eligible student | | | | you’re having problems meeting the monthly |
| loans would be capped at $296.94 ($40,000 – | | | | payments on your private student loans, you should |
| $16,245, multiplied by 15 percent, divided by 12). | | | | contact the lenders to see if they’re willing to work |
| Income-based monthly payments will be adjusted | | | | out more affordable repayment plans for you. Keep in |
| annually, based on a borrower’s federal tax return | | | | mind, though, that private student loans typically have |
| from the previous year. As a borrower’s income | | | | less flexible repayment options than federal student |
| rises, the income-based repayment cap will also go up. | | | | loans. |
| If the income-based repayment cap reaches a level | | | | 2. Federal PLUS loans. If your parents took out PLUS |
| higher than what a borrower’s monthly payment | | | | parent loans to help you pay for college, they won’t |
| would be under a standard 10-year student loan | | | | be able to take advantage of income-based |
| repayment plan, the borrower will no longer qualify for | | | | repayment on their PLUS loans. Consolidation loans |
| income-based repayment for her or his student loans. | | | | that included PLUS parent loans are also excluded |
| Borrowers whose adjusted gross income falls below | | | | from income-based repayment. Any Grad PLUS loans |
| 150 percent of the poverty threshold won’t be | | | | you took out as a graduate student, however, as well |
| required to make any payments on those student | | | | as consolidations of Grad PLUS loans, are eligible. |
| loans that qualify for income-based repayment. | | | | 3. Defaulted student loans. Your student loans don’t |
| Even if no payments are due, however, interest will | | | | have to be new to be eligible — even long-time |
| continue to accrue on those college loans. Unpaid | | | | graduates may be able to qualify for income-based |
| interest will also accrue if a borrower’s | | | | repayment on college loans taken out years ago. But |
| income-based monthly payments aren’t sufficient | | | | you can’t be in default on your loans. To qualify for |
| to cover the full monthly interest on the qualifying | | | | an income-based repayment plan, any federal college |
| college loans. Any accrued unpaid interest will be | | | | loans you have in default will need to be rehabilitated |
| added to the student loan principal and capitalized | | | | first. |
| when the borrower no longer qualifies for | | | | |