Debt relief for student-loan borrowers

The Department of Education is beginning a program to help students with debt relief. The department is allowing people to apply for a program that will cap monthly student loan payments based on income, and forgive any balances still there are 25 years. If students are working in the public service sector, their loans could be forgiven after just 10 years.

The program is called IBR (Income Based Repayment) program. It is determined by two things: the person’s income and the amount of his or her loans. The Department of Education is setting up a website, www.ibrinfo.org, to answer questions and help borrowers with the application process. The website should be available and fully functional in coming weeks. Lauren Asher, President of the Institute for College Access and Success, stated, “It’s a way to borrow for college without going to the poor house.”

The beginning of the program

This new Department of Education program comes from the Education Department’s College Cost Reduction and Access Act of 2007, which authorized a program catering to the incomes of borrowers at FFEL, (Federal Family Education Loan), and Stafford loan levels. In this new program, monthly payments are capped around 10% of the borrowers’ income and don’t exceed 15% of annual income above $ 16,000. Those earning under $ 16,000 aren’t required to make monthly payments.

The goal of the program

The goal of this program is to provide debt relief for people who have student loans and modest to low incomes. The IBR program stretches the payments over a longer period of time, thus bringing payments down. Although consumers won’t see savings throughout the course of the loan’s lifetime, they will have smaller payments to manage monthly without hurting their credit scores. Asher added, “IBR can lower costs and provide light at the end of the tunnel for such borrowers. It gives them greater flexibility to save for retirement, buy a home, or pay for their own children’s education.”

Consumers must choose wisely

It’s up to consumers to do some homework, however, to see if this program is right for them. In some cases, the IBR program could inflate the loan to more than it would have been originally. There are some accounts in which accruing interest increase the overall cost of the loan substantially. Also, since almost all student loans should be paid off before 25 years, this aspect of the program may not be beneficial to everyone.

Mark Kantrowitz, publisher of FinAid.org, states that people can ” save on interest costs more effectively by paying off loans faster.” Kantrowitz also stated that using the FinAid.org website is a great tool for consumers, as they can track financial aid industry data, and see how their payments relate to the standard.

After approval

One additional note: If consumers have salary increases that disqualifies them for the program, they will be responsible for the cost of the loan and the additional interest accrued up to that point. But even then, the monthly payments could not exceed what they would have been under a standard repayment plan and consumers always have the option of paying off their loans faster.

The Department of Education is working to help consumers with student loans and finding debt relief. The IBR program may be a good solution for consumers with unmanageable student loan payments. A little research and good decision making can help consumers get finances under control and find debt relief.