Some Relief for Student Loan Owners

In July, owners of federal student loans may start feeling some relief on the loan debts they are having difficulty paying. Student loans are now eligible for repayment based on your income and the number of people in your family. While it may provide some relief now to debtors who are struggling to pay their bills, the downside is that loan payments will be extended into the future and you, as the borrower, will have to pay more money in interest fees.

The program for student loans is called the Income Based Repayment Plan, or the IBR plan. Under the terms of the plan, your required monthly payment will be capped at an amount deemed affordable based on the size of your family and the amount of your monthly income.  Any Stafford loan, Grad PLUS or consolidation loan made under the Direct Loan or FFEL program is eligible for inclusion, except any loan that is in default. Parent Plus loans or consolidation loans that repaid a Parent Plus loan are also not eligible.

This is a plus for those who are undergoing a financial hardship and can’t meet their monthly financial obligation but have run out of options. Getting behind on or defaulting on a student loan can spell big trouble for your credit score that will have long-lasting effects on your credit history. If you are aware of upcoming problems you will face paying your student loan notes, you can use this calculator that will allow you to project  how much you can lower your student loan payments under the income-based repayment plan.

The other plus to this plan is that after you have paid for 25 years, whatever balance remains will be forgiven. For those who are employed as a public servant, student loan balances can be forgiven after only 10 years. Public servants include people who work for the government, in schools, or are employed by a non-profit organization. There are also programs you can research that allows civil servants to have their loan forgive upfront if they meet eligibility requirements.

Other options that may be considered for those struggling with student loan debts include refinancing the original Federal student loan if you currently have a variable rate on your loan. Since interest rates are low now, it may be a good time to look into the refinance option for variable rate loans initiated before July 1, 2006.