Student Loans Follow Up

New government sponsored programs help with student loans:

The Income-Based Repayment (IBR) plan was proposed as part of the College Cost Reduction and Access Act of 2007 and will become available on July 1, 2009.

Income-based repayment is intended as an alternative to income sensitive repayment (ISR) and income contingent repayment (ICR). (Both ISR and ICR plans will continue to exist.) It is designed to make repaying education loans easier for students who intend to pursue jobs with lower salaries, such as careers in public service. It does this by capping the monthly payments at a percentage of the borrower's discretionary income, which is based on the borrower's income, family size, and total amount borrowed. The monthly payment amount is adjusted annually, based on changes in annual income and family size.

Public Service Loan Forgiveness

The College Cost Reduction and Access Act of 2007 established a new public service loan forgiveness program. This program discharges any remaining debt after 10 years of full-time employment in public service. The borrower must have made 120 payments as part of the Direct Loan program in order to obtain this benefit. Only payments made on or after October 1, 2007 count toward the required 120 monthly payments. (Borrowers may consolidate into Direct Lending in order to qualify for this loan forgiveness program starting July 1, 2008.)

This contrasts with the loan forgiveness of the remaining balance after 25 years of repayment under the income-contingent and income-based repayment plans for borrowers who are not employed full time in public service jobs.