By Charlene Crowell
Online resources and lowered repayments expected to lower monthly costs.
As many as 1.6 million responsible student loan borrowers could benefit from a new order that ties loan repayment to income and family size. Beginning September 30, an expanded option called Income Based Repayment (IBR) can reduce monthly loan payments. Coordinated with the Commissioner of Internal Revenue and the Secretary of Education, an online application enables borrowers to apply for the program directly instead of going through a loan servicer.
To be eligible for IBR, a borrower’s current repayments must impose a “partial financial hardship”. A “partial financial hardship” occurs when the monthly payments under a Standard Repayment Plan with a 10-year period is more than the monthly payments required under an IBR for those same loans. In married households where both spouses have IBR-eligible student loans, the combined payments under a Standard Repayment Plan and under IBR are compared.
Loans eligible for the IBR are: Stafford, Grad Plus and Consolidation Loans made under either the Direct Loan or Federal Family Education Loan Program.
Several loans are ineligible for an IBR: private loans, federal loans in default, and parent Plus. Borrowers who want to determine if they are eligible for IBR can use the Department of Education’s IBR calculator: http://rspnsb.li/OnQaBA.
Once approved, eligible borrowers could see their monthly repayments capped to no more than 10 percent of their discretionary income. Should household size or income change, the IBR option may not remain available.
To sign up for an IBR before September 30, interested borrowers will still need to contact their loan servicer, the company that receives monthly student loan payments. Borrowers uncertain as to who their servicer may be can enter information online at www.nslds.ed.gov to determine their servicer and also find out their loan balance and interest rates.
Since 2009, former students have been able to enroll in a similar plan that called for higher payments of 15 percent. Two years ago, President Obama signed into law an IBR plan that lowered the monthly cap to 10 percent for federal student loans taken out after July 1, 2014. With a June 2012 executive order, the waiting time is cut and borrowers may begin applying this fall.
Additional benefits derived from the executive order are:
- Since July 15, borrowers now repaying student loans and in good standing may become eligible for some student loan forgiveness after 25 years of responsible payments;
- After September 30, federal direct student loan borrowers will no longer be required to contact their loan servicer as the first step to apply for IBR;
- Streamlined, online applications enable income and household verification that eliminates the likelihood of errors or missed information; it also enable applicants to complete the process in one visit;
- Other new online resources available through the Department of Education that now include tools to help students make better financial decisions, become more financially literate and knowledgeable of other options for monthly repayments;
- Higher education institutions will have an enhanced ability to help students understand repayment options while still enrolled including choices for repayment plans.
Today, nearly two-thirds of college graduates borrow to pay for their education with an average debt at graduation around $26,300. However, for students enrolled in private institutions and/or graduate programs, loan debt can easily reach six-figures.
This new reform is an important step towards enabling those who value education the chance to make affordable payments. It may not change the cost of a college education; but it will likely make repayment more manageable.
At a time when the American economy is still struggling to fully recover from a severe recession, with fewer jobs available than there are people looking for work, some financial relief is better than none. Despite the high cost of higher education, it remains a solid investment for the future.
For additional information on IBR and other student loan information, interested persons may phone 1-800-4-FED-AID or visit www.studentaid.ed.gov.
Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at: Charlene.crowell@responsiblelending.org.
