Student loans. Those two words are enough to make any college student shudder. It’s akin to a Pepto Bismol commercial: Indigestion. Upset stomach. Student loans. No one wants to break free from college after having earned a degree only to be shackled by thousands of dollars in debt.
With a new federal student loan repayment program, you may not have to.
There are several new repayment options that are becoming available to college graduates. Perhaps the most celebrated is a plan effective July 1, 2009, called the Income Based Repayment Plan, which is based on your income rather than the amount you owe.
Say you owe $50,000 in student loans. At the current repayment plan, with 6.8 percent interest, you would pay $575.40 per month. With the new plan, it would be based on your income. A single student making $20,000 a year would pay around $47 per month.
A big question here is: Will this mean I will be paying student loans for the rest of my life? Not necessarily. If you faithfully pay each payment for 25 years, the government can forgive whatever is left owing on the loan.
And if you work for a public service agency, such as a government or nonprofit organization, the period is shortened to 10 years.
This sounds like a pretty sweet deal. However, it will not apply to everyone who has borrowed. This is primarily a need-based program, and the rules (as with every federal program) are fairly complex. However, if your student loans exceed your annual income, you will most likely qualify.
There is opposition to this plan. Why should the government be forgiving loans that students knowingly took out? It’s a valid question. Financial responsibility is important here. After all, if you run up a huge credit card bill, you are responsible for paying the amount, regardless of your income situation.
I would argue that this is for education. Education is a foundation for better jobs and more qualified people contributing to the faltering economy. It is not the “non-necessity” that some make it out to be—ask any single mother of three children working a minimum-wage job and attending night classes so she can have a career to support her family.
This is, again, a need-based program. For example, a CEO who is making a six-figure salary will have higher payments. Thus, they will presumably have their loans paid off before the 25-year mark. This also applies to people who have a small amount of debt—even with small payments, 25 years is 300 payments. Again, it’s unlikely that they will not pay their debt off by then.
I believe that the forgiveness of loans will actually apply to a much smaller number of people than we realize. Hopefully a degree will help people to get higher paying jobs. For the small number of those who aren’t able to do this, there is a way out of debt.
So, how does one apply to see if they qualify for this program? Call 1-800-4-FED-AID. They will ask you questions about your loans, current income, etc., to determine if this type of aid is right for you. You can also go to www.studentaid.ed.gov to get more information on this program, including how payments are calculated.
I strongly believe that this program is a good thing and will encourage more people to get out there and get an education.