Great news for student loan debt holders who are struggling to pay those loans every month. Have you heard of the Income Based Repayment (IBR) program, or the “Pay as You Earn” plan? Well if you haven’t, you might want to listen up.
To give you a little history- the US Department of Education implemented an Income Based Repayment (IBR) program in 2007, which aimed to help borrowers pay off their student loan debt, relative to their earnings. However, the program wasn’t cutting it as the student debt number continued to rise to $864 billion in federal loans and most students out of college were landing low paying jobs.
The improved version of this program, also referred to as the “Pay as You Earn” plan, is designed to address this issue and will launch on December 21st, 2012.
This plan is designed to do two things:
- Reduce the cap on monthly payments from 15 to 10 percent of discretionary income.
- Accelerate the time it takes for students’ loans to be forgiven from 25 to 20 years.
Here is an example of potential savings with this improved plan for a household of 1 with an income of $45,000/year and $60,000 in loans:
|Standard||Old IBR||Pay as You Earn|
|Monthly Payment||$720||$297 ($423 savings)||$198 ($522 savings)|
|Amount forgiven||N/A||$156,927 after 25 years||$139,769 after 20 years|
To qualify for the “Pay as You Earn” program:
- You must have taken out a federal student loan after October 1, 2007 AND have taken out at least one loan on or after October 1, 2011 (Private student loans do not apply).
- Use the IBR calculator to determine if you are eligible for the Income Based Repayment Program.
The Department of Education estimates that at least 1.6 million borrowers qualify for the “Pay as You Earn” plan, but very few are aware that it exists, so spread the word and share this important information with your peers! Learn more about Income Based Repayment.