Repaying student loans: New IBR program begins Wednesday

By Aaron Gilchrist - bio | email
Posted by Terry Alexander - email

RICHMOND, VA (WWBT) - Starting Wednesday people still paying off college loans have a new option. The income-based repayment program comes at a time when laid-off Americans are looking for ways to cut expenses. But this plan isn't for everyone.

2008 college graduates averaged more than $27,000 in loan debt. The new income-based repayment, or IBR, program creates payment caps based on income and family size for anyone making loan payments after Wednesday.

Go to school long enough and the dollar amount adds up over the years.

"You can see that when I graduated in 1996, I owed about $95,000..." said Vera Livingston.

Ten private and government student loans helped Vera earn her law degree.

"I've even taken home equity lines of credit.  I've paid $12,000 at a time," Vera said.

The new income-based repayment program is the latest of now six repayment plans and may help Vera and others with their student loans.

"What this does is it creates a repayment that's consistent across all the federal loan programs," said Mike Hawkes, Educational Credit Management Corporation.

He says while this program will be very useful for some, it's not simple and not everyone will qualify.

"You have to have what's called a partial financial hardship.  And that's defined in the law that congress passed," Hawkes said.

IBR uses a very detailed formula to determine if you qualify. If you're a candidate the program caps monthly payments based on income and family size and forgives any debt you might have left after 25 years, but like most things, there's a downside.

"Yes, it might help you if you're having an economic difficulty right now.  But, in the long run you may end up paying more interest," he said.

Since your lender or loan servicer will make the final decision about whether you qualify, Hawkes suggests you get in touch with them if you think IBR is right for you.

"People will be able to move in and out of income based repayment as they need it. But by talking to their lender or servicer, they will have the benefit of experienced advice," said Hawkes.

If you think the IBR is right for you, there several online calculators that can give you some idea about whether you'd qualify. To go to the Department of Education's calculator click here.

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