Help Is on the Way for Student Loans

June 23, 2009 — -- Relief is just around the corner for the many young Americans who struggle under the weight of student-loan debt.

On July 1, a new federal program aimed at easing the monthly burden on college graduates making hefty loan payments on modest salaries. The new Income Based Repayment plan is supposed to cap monthly payments at an amount considered affordable based on income and family size.

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For most eligible borrowers, payments will amount to less than 10 percent of their income, according to the Project on Student Debt, a nonprofit group that operates a Web site explaining the program.

Income Based Repayment also will forgive student-loan debt that remains after 25 years of payments. And graduates who enter public service careers may qualify for loan forgiveness after 10 years.

This new program is in addition to the Income Contingent Repayment and economic hardship deferments plans already available to student-loan borrowers.

The Income Based Repayment option applies to Stafford, Grad PLUS or consolidation loans made under either the Direct Loan or Federal Family Education Loan programs. It does not apply to loans currently in default, parent PLUS loans, consolidation loans that repaid a parent PLUS loan or private student loans.

The eligible loans can be new ones just entering repayment or existing loans that have been in repayment for years. They could have been used to pay for any type of education, including undergraduate, graduate, professional and job training.

Borrowers looking to take advantage of this program will need to contact their lender to apply. Lenders will determine eligibility. It remains to be seen how prepared these lenders will be to handle a flood of applicants beginning next week. So patience may be needed if you're looking to take advantage of this new option.