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Student loan income-based repayment plan

Janelle Vreeland

What you need to know about income-based repayment plan.

Every month the US government releases figures on how much consumer credit grew month over month, from the previous month. Every fall, September figures are seasonally inflated as new student loans are factored in to the equation. This year however, non-revolving consumer loans from the government–mainly student loans–grew by $14.3 billion in September from August, according to data that was not seasonally adjusted. What does that mean to the college student who is taking out $25,000 in student loans to pay for an education, with no guarantee of a job once your degree is earned? The student loans still have to be repaid, right? Yes they do, and you may be eligible for help. Take advantage of the Income-Based Repayment Plan

What is Income-Based Repayment?

Essentially the income-based repayment plan for student loans that puts a cap on your required monthly payment based on the amount of your income and your family size. The income-based repayment plan for student loans applies to the major all types of federal student loans, including, Stafford, PLUS and Consolidation Loans made under either the Direct Loan or FFEL Program, Parent PLUS Loans (PLUS Loans that were made to parent borrowers), or Consolidation Loans that repaid parent PLUS Loans.

Eligibility for the Income-Based Repayment Plan

Generally, you may use the income-based repayment plan if your student loan debt is high relative to your income and family size. You can use the US Department of Education calculator to see if you qualify. Married couples can benefit further as your spouse’s eligible loan debt is taken into account when the determination is made whether or not you are eligible for the income-based repayment plan.

Benefits Income-Based Repayment Plan

Obviously lower payments will prove to be a benefit, however as with any other type of loan, the lower the payments, the longer the term to pay it off in full. Borrowers are required to pay no more than 15 percent of any income they earn above approximately $16,300. You lost are in process to reduce this figure to 10%. As of now the laws are scheduled to begin in 2014.  You may pay more interest in the long run. Repaying the loan under the terms of this plan for 25 years will result in the remaining balance being canceled.  You may also seek student loan forgiveness by working in public service for 10 years. All of the above benefits are subject to annual documentation. Failure to provide this documentation on an annual basis will result in your loan reverting back to its original terms.

Alternatives to Student Loans – Applying for Scholarships and Grants

All students would be wise to examine alternatives for student loans to pay for their education. Nearly 2/3 of today’s students borrow money in the form of student loans. A college education is expensive and on average students graduate with a student loan debt of $25,000.00. Alternatives include applying for scholarships, seeking school grants sources. Remember a degree is not a guarantee of a job in this economy. You should do all that you can do to reduce the amount of your student loans. It will not be easy. It will take effort on your part to seek out those options.

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