On July 1, 2009, the government implemented a program called the Income Based Repayment Plan. The plan allows for graduates to reduce their monthly payments based on their home income. It is also available to individuals with federal loans and borrowers who used a federal consolidation plan to consolidate their debt

Read a CNN article on the repayment plan.

Pros of the plan

• Borrowers who qualify can reduce their monthly loan payments
• If you go into the public service, your debt is forgiven after 10 years. Similarly, if you make timely payments for 25 years, the remaining balance of your loan is forgiven.
• Even if you can’t find a job and remain unemployed six months after graduation when the loans begin to come in, you can still qualify for the plan. If you do qualify, your monthly payments could be zero.

Cons of the plan

• You will end up paying more interest over time if you decide to pursue the 25 year repayment plan. Since you are drawing out the period of the loan, you will pay more interest in the long run than someone who has a standard 10-year repayment plan.
• In order to qualify, you must be able to prove, through documentation, your family size and family income. If you are unable to do so, you will not qualify for the plan.

Other strategies for reducing student debt

• If you have a federal loan, it may not be all bleak. The government allows for people who cannot make their payments to apply for forbearances and deferments. This means that, if absolutely necessary, you can stop making payments for a period of time until you are able to pay again. The loan will still be there, but this does give temporary relief.
• Programs such as Americorps and the Peacecorps offer educational rewards after you complete the service. For example, Americorps offers a Segal Education Award of $4,725 after a year of full time service. This money can be used to pay off student loans. For more information go to the Americorps website.
• Borrowers who complete the Peace Corps and have Perkins loans are eligible for a cancellation of student loans. A Peace Corps member is eligible to receive a 15 percent loan cancellation in the first two years of service, followed by a 20 percent cancellation during the third and fourth years. This comes to a 70 percent cancellation rate after four years of service. For more info go to Peace Corps member benefits site.

How to find out if you qualify for the income based repayment plan
You can go to the Education Department’s web site at studentaid.ed.gov to see if you qualify for the plan. Your lender will be able to give you more insight into whether or not this repayment plan would work for you, so it is important to speak with your lender as well.

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