income based student loan repayment

[Amby 490]

College students are often forced to make a decision between two life paths: one that feeds the soul and one that feeds the bank account. Rarely do the two meet. As a result, the average college grad — who leaves school with about $23,000 in student-loan debt — either slogs along during those first few work years in satisfying (yet typically low-paying) jobs or makes a play for grinding corporate gigs that pay the bills and deaden the heart.

But all that stands to change on July 1 with the start of an income-based repayment (IBR) plan. The goal of the government initiative, which has been championed by Massachusetts Senator Ted Kennedy, is to prevent payments on federal student loans from exceeding 15% of a borrower's disposable income above 150% of the poverty level. Borrowers who earn below that threshold (which in most states is about $16,000 for a single person with no dependents) wouldn't have to make any monthly payments at all.

These changes, alongside a $619 increase in the maximum Pell Grant and a reduction in the interest rate on new federal loans, arrive at a moment of seemingly runaway college costs on one end and a dismal economic outlook on the other. The Obama Administration is trying to lessen the pressure on aspiring students in ways both big and small. Last week, Secretary of Education Arne Duncan announced a plan to simplify the Free Application for Student Aid (FAFSA) — the form to apply for federal dollars — cutting at least 20% of the questions and making it easier to fill out online. For months now, Duncan has discussed the possibility of making Pell Grants an entitlement or guaranteed benefit like Social Security that would be protected from annual budget cuts. Duncan is also trying to transition to a system in which students get all their college loans from the government, rather than going through banks and other private lenders. The new IBR program does not apply to private loans.

Add up these steps, and the Obama Administration appears to be attacking the staggering cost of higher ed from the back end — that is, if we can't fix how much college costs, at least we can try to fix how you pay that cost back. "There's clearly a lot of work to do in bringing down the cost of college," says Edie Irons, spokesperson for the Project on Student Debt. "But even if you froze college tuition at every institution tomorrow, you'd still have this problem where people are borrowing incredible amounts of money to take important jobs that may not pay very well."

In the past, federal-loan repayment was structured so that a graduate would have to pay a certain amount of money each month, regardless of his or her income at the time. Under the IBR program, if you lose your job or are forced to take a pay cut, the amount you have to pay back per month will drop. If, however, your salary subsequently increases, your payments will still be capped at 15% of your disposable income. That is, of course, if you are eligible to participate in the program; grads with private loans are exempted as well as those who owe less than they earn in a year (use this calculator to figure out if you qualify). It's all based on a debt-to-income ratio and is fluid and flexible in a way that most government systems are not. And if the Education Department is serious about abolishing the two-track loan system (in which it provides direct loans as well as subsidizes private-lender loans), this is just one more way of convincing borrowers to throw their hat in with the feds.

One big upside is likely to be a reduction in the number of people who default on their student loans, a financial disaster that can destroy credit ratings and hike up interest rates on future loans. "In this economic recession, a lot of students are having a difficult time just paying for normal things like groceries or rent," says Carmen Berkley, president of the U.S. Student Association, an advocacy group. "This is really going to make sure that students are able to keep up with their loans and don't have to default. We want to be able to have good credit, to eventually be able to buy cars and houses too."

Under the IBR program, if students are still paying back college loans after 25 years, they will be eligible to have all debt erased (though, if the law stands as is, much of that remaining balance will be taxed as income). And if students go into a public-service career, they are eligible for loan forgiveness after a mere 10 years. While participants in programs such as AmeriCorps, the Peace Corps, the military and other such institutions have long been eligible for loan reduction or forgiveness, this new program expands such mercy to potentially hundreds of thousands more students who won't be forced to make that knee-jerk decision between ideals and salary. "We really need college graduates to go into fields like teaching and social work and public-interest law and rural medical services," says Irons. "And because of the way people are forced to pay for education, they are less and less able to do those jobs. For society's sake, we should make it easier for them to do so."

http://www.time.com/time/nation/article/0,...1908105,00.html

[Dr. A ♥ O 203]

hmmm. 1997-2009...loan forgiveness

what does the field public interest law mean?

[^KK^ 3]

someone please take my student debt away...

[Dr. A ♥ O 203]

uhmmm yes US Government I'd like a bailout toozzzzz purrrrty plez!

[Jenn! 918]

Oh good, let's encourage college students to choose the easiest majors so that they can party for four years and not be able to get a job to pay back their loans.

I'd rather see these low-paying "important jobs" pay a wage that allows people to pay back their student loans.

[justashooter 430]

sounds like uncle o is sticking his hand in my pocket again.

[w¡n9Nµ7 §£@¥€r 123]

every jock at RU majored in communications because they were too fvcking stupid to major in something real.

and now they will be rewarded for it.

[AlHayatZween 2]

but you still have to pay it back, no?

just at a lower rate for a longer period of time...?

[ScottThuy 140]

hmmm. 1997-2009...loan forgiveness

what does the field public interest law mean?

10 years of no missed payments while doing a job like teaching, a cop, etc... but I dont think it goes back to 97...

[Dr. A ♥ O 203]

Before this whole financial crisis I do remember getting a yellow paper from the federal student loan office saying I qualified for consolidation of loans at this unbelievably low interest rate of .25% or something. I didn't take it because one it was too unreal to believe and two some of my loans have no interest rates and I didn't want to put anything on them. It didn't seem worth it since my other student loan interest rates we already 2-3%. Then about six months to a year after that I got another paper from them and it said loans are now subject to a rise in interest rates and the loans I did have with interest rates went up to 6-6.5%. I didn't think that was really fair at all especially while I'm watching Bloomberg and the Feds are cutting the interest rates left and right. bah.