The key benefit of Income Based Repayment is that it can make your payments more manageable early in your career when your earn less. However, these lower monthly payments may result in longer repayment periods and additional interest costs.
If your earnings are low enough that your monthly payment does not cover the interest that accrues on your loans, then the federal government will pay the unpaid interest on subsidized Stafford loans for up to three years. (Note that this benefit does not apply to unsubsidized Stafford loans and other types of federal student loans.) Unpaid interest not covered by this federal subsidy gets added on to your overall student-loan balance.
If any loan balance remains after 25 years in Income Based Repayment, that unpaid student debt may be cancelled.
There also is an option to have student loans forgiven after 10 years for graduates who embark on careers in lower-paying public service jobs in the government or nonprofit sectors.
To qualify for this benefit, borrowers must be sure their loans are in the Direct Loan program. If not, there is a mechanism to switch to the Direct Loan program to qualify for this benefit.
To learn if you qualify for Income Based Repayment or Public Service Loan Forgiveness programs, visit the following Web sites: ibrinfo.org and StudentAid.ed.gov run by the U.S. Department of Education.
On both sites you will find calculators that will help you determine whether you might be able to ease your student-loan debt burden.
This work is the opinion of the columnist and in no way reflects the opinion of ABC News.
David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at firstname.lastname@example.org.