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Earlier this year, the U.S. Department of Education rolled out a new repayment option for student loan borrowers that could significantly reduce the monthly payments on your federal student loans.

As of July 1, 2009, federal student loan borrowers have been able to apply for the new income-based repayment plan, which recalculates your monthly student loan payments using a new income-based formula.

Student Loans Eligible for Income-Based Repayment

As the name suggests, this new repayment option is determined by a borrower’s income: Income-based repayment sets a cap on your monthly student loan payments based on your income and family size.

The IBR plan was designed to provide a more affordable repayment option for borrowers struggling to meet the monthly payments on their student loans.

“We know many graduates are concerned about their ability to repay student loans in the current economic environment,” U.S. Secretary of Education Arne Duncan said in the Department of Education’s press release. “This new plan addresses the issue head-on by giving them the option of a monthly payment tied to their income.”

The IBR option is available for most types of federal college loans: Your Stafford loans, Grad PLUS loans, and federal student loan consolidations are all eligible, as long as the loans aren’t in default. IBR is not available, however, for federal parent loans (PLUS loans) or for consolidation loans that included a parent PLUS loan in the consolidation.

Calculating Income-Based Student Loan Payments

The IBR plan revolves around three key factors: your income and family size, and whether you hold a job in public service. Your income and family size are used to determine your monthly repayment amount. A public service job may qualify you for a shorter repayment period and partial loan forgiveness.

You can easily calculate what your monthly IBR payment would be in order to find out if you would be eligible for the IBR plan:

1. Find the federal poverty level guideline for a family of your size, and multiply by 150%.
2. Subtract your annual adjusted gross income.
3. Multiply by 15% — the resulting number is how much you would be expected to pay on your student loans over the course of a year.
4. Divide by 12 — the number you end up with is what you would pay each month on your student loans under the IBR plan.

If this final number is lower than your current monthly student loan payments, then you would qualify for the IBR plan. (If your IBR payment is higher than your current monthly payments, you would remain on your current repayment plan.)

If your family falls below the poverty line, you would owe nothing on your student loans for as long as your family remains below that income line.

The Public Service Student Loan Forgiveness Program

If you’re making reduced student loan payments under the IBR plan and you also happen to work in the nonprofit or public service sector, you may qualify for an additional benefit, the public service loan forgiveness program.

Under this part of the IBR  plan, your repayment period could be capped at 10 years. The interesting part here is that the monthly payments on your student loans aren’t adjusted so that you pay back the full amount of your student loans in those allotted 10 years. Rather, after 10 years in a public service position, any balance you have remaining on your federal college loans could be forgiven, provided you were making each of your monthly IBR student loan payments during those 10 years.

In other words, your federal student loans would be absolved and considered repaid, regardless of whether the loans were actually repaid in full or not.

Be aware, however, that the public service loan forgiveness program is only available for Federal Direct Student Loans. If you took out your federal student loans from a third-party lender (through the Federal Family Education Loan Program) rather than directly from the U.S. Department of Education, you would need to consolidate your FFELP loans into a Federal Direct Loan before you would be eligible for the 10-year forgiveness option.

But you may still be eligible for partial forgiveness on your student loans even if you don’t hold a public service job. After 25 years, if you’ve been making IBR student loan payments for those years and you meet certain other requirements, any remaining balance on your student loans may be cancelled.

college loans, income-based repayment plan, federal poverty level guidelines

Article Source:http://www.articlesbase.com/loans-articles/incomebased-repayment-for-federal-student-loans-1495359.html

With a 253 to 171 vote last week, the Democratic-led House of Representatives easily passed landmark legislation that would bring an end to the Federal Family Education Loan Program (FFELP), the program initiated by the Higher Education Act of 1965 to offer college students federally guaranteed student loans via private lenders.

Currently, the government pays these private FFELP lenders a subsidy for the federal student loans they originate. A second federal student loan program — the Federal Direct Student Loan Program, begun in 1992 — issues federal student loans directly to borrowers through the U.S. Department of Education, with no third-party involvement from a bank or other FFELP lender.

Should the House bill pass the Senate and become law, the FFEL program will be dismantled and all federal student loans will become Federal Direct loans, made directly through the federal government rather than through third-party FFELP lenders and banks.

Expanding Pell Grants, Ending Government Subsidies to Banks

Supporters of this legislation, known as the Student Aid and Fiscal Responsibility Act of 2009 (H.R. 3221), say that the elimination of FFELP subsidies will generate $87 billion in savings to taxpayers over the next decade.

President Obama has been a vocal backer of the bill, maintaining that FFELP subsidies funnel government money to banks and away from students.

“Ending this unwarranted subsidy for big banks is a no-brainer for folks everywhere,” Obama said on Monday in a speech at Hudson Valley Community College in New York.

The author of the bill, Representative George Miller of California, echoed this sentiment. With its vote to pass the measure and make the government the direct issuer of all federal student loans, said the Democrat and chairman of the House Education and Labor Committee, “the House made a clear choice to stop funneling vital taxpayer dollars through boardrooms and start sending them directly to dorm rooms.”

The bill allocates $80 billion of this estimated savings to fund several education initiatives at what supporters say is no additional cost to taxpayers.

This allocation includes an investment of $40 billion to expand the federal Pell Grant program, which targets low-income students, increasing the maximum annual Pell Grant award. The bill would also set aside $10 billion for the nation’s community colleges to strengthen job-training and adult-education programs; $2.5 billion for historically Black colleges and universities, as well as minority-serving institutions, to boost graduation rates; $4 billion for school modernization, renovation, and repair projects across the country; and $8 billion for various early education programs.

In a criticism of the bill, Representative John Kline from Minnesota, ranking Republican on the Education and Labor Committee, noted that the legislation only covers the cost of some of these initiatives for five years, after which taxpayers will be facing either program cuts or increased taxes in order to continue funding these initiatives.

Moreover, Kline revealed, the nonpartisan Congressional Budget Office has recently acknowledged that the proposed Pell Grant expansion will actually cost $11.4 billion more than originally projected — an amount that isn’t covered by the current $80 billion allocation within the student loan bill.

Passed by House, Student Loan Bill Goes to Senate

The Student Aid and Fiscal Responsibility Act now awaits a Senate vote. In his speech this week at Hudson Valley Community College, Obama assured listeners that the bill would clear the Senate and reach his desk to be signed into law.

Jeff Mictabor is an enthusiast on the topic of student loan issues in the news. He has been writing for the past 10 years for a variety of education publications. He now offers his writing services on a freelance basis.

Article Source:http://www.articlesbase.com/loans-articles/pending-legislation-will-overhaul-student-loans-1282657.html

photo credit: Megan Fox Rules!

The government and other private foundations have made over $800 billion in free grant money available just this year, and this isn’t too far out of the ordinary. Every year the government provides these cash grants to help people and small businesses meet their financial goals. As a result, Americans over the age of 18 can apply for and receive government money that never has to be paid back.

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photo credit: Batgeek Fotos

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