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July 15, 2010

Repaying Student Loans

As of July 1, the Education Department introduced a program called income based repayment, or IBR, that puts a cap on monthly payments for federal student loans at 15% of the borrower's income. The idea is to keep debt loans affordable for those who don't make a great deal of money. Eligibility is determined by weighing the borrowers' income against the size of their monthly loan payment.

If a husband and wife file a joint tax return they can use their combined loan payments to calculate eligibility. Borrowers also have the option to use their current balance to calculate eligibility rather than the amount they owed when they first entered repayment. That means if interest has been accruing the borrower may now be eligible.

The program is available for most federal student loans regardless if they're direct loans or administered through private lenders. Plus loans are not eligible.

IBR forgives remaining loan balances after 25 years. Those who work in public service could have loans forgiven after 10 years. Those who earn less than $16,000 don't have to make any monthly payments.