Getting Personal
Income-based student loans
Question: You recently reported on a student loan option that was being offered as part of the government stimulus package, which is based on a person's income. I have searched you website and have been unable to find the story. I was wondering if you could please let me know where to find this information. Thanks. Ethan, Minneapolis, MN
Answer: It's called an income-based repayment plan. It uses a formula that takes into account income, family size and your state. The payment requirements are on a sliding scale, but for most people their monthly student loan tab should run at 10% or less of their income.
The Education Department gives this example: Let's say you owe $25,000 at 6.8% interest. You're single, and earn an adjusted gross income of $30,000. Under the standard 10-year repayment your monthly bill is $288. But you qualify for the income-based repayment plan your monthly payment drops to $172 a month; married, the bill falls to $102; married with one kid, $32; and so on.
This plan makes it much easier to meet your monthly obligation. The price is that the overall cost of your student loan goes up if you don't eventually attack it more aggressively. After 25 years what remains of the loan is forgiven. The loans must be federal student loans.
A good source of information about all aspects of paying for college--including income-based repayment--is finaid.org. The federal government has upgraded its information on student loans at federalstudentaid.ed.gov.
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Comments (5)
November 20, 2009 3:48 PM PT
One thing that borrowers should be aware of is that under this plan their monthly payment formula will be recalculated every year based on income. Although payments will never exceed the ones in the basic plan, they could become larger than those available for some of the other options.
November 21, 2009 6:42 PM PT
This wasn't part of the stimulus package-it was part of the Student Debt Relief Act of 2007, it just didn't take effect until now.
November 21, 2009 7:46 PM PT
The students loans are a contract. So I wonder what definition of Income they are going to use for this new "income based" repayment contract?
The word is not defined in any federal statute, (law), as the US supreme court ruled the congress cannot define a word used in the Constitution.
Also, several people I know of feel that they are being forced into this income based repayment plan, which does not allow them to dispute past charges, and makes them sign another contract (new promissory notes).
There has to be a better solution.
This one reeks of the continual exploitation of students.
November 22, 2009 8:12 AM PT
Another income-based repayment plan called income-contingent repayment has been offered since 1995 in the direct student loan program (but not in the guaranteed student loan program due to lack of IRS access for income verification). The repayment plan has been falsely bad-mouthed by the banks, guarantee agencies, state government lenders and their school allies and thus has received very little publicity in the media. A sad little story of self-interest denying borrowers a valid repayment option.
http://www.hofstra.edu/pdf/law_lawrev_schrag.pdf
http://law.hofstra.edu/pdf/Academics/Journals/LawReview/lrv_issues_v36n01_i03.pdf
November 23, 2009 3:09 PM PT
I think that social lending has become a good way for those with poor credit to get personal loans. This could be a good option Especially for student loans. online groups like prosper and lending club have no bank involvement so its just investors and borrowers.