Grads get a break on student loan debt

Barack and Michelle Obama understand the heavy burden of student loan debt. The Obamas did not pay off their student loans until Obama's best-selling books earned them millions of dollars.

With the cost of a college education rising, more than 60% of students take out loans to fund their undergraduate education. On average, students who borrow graduate with debts of $22,700 — a jump of more than 18% from 2000. But some of those with a newly minted bachelor's degree are shackled with debts of $40,000 or more. You think this economy's tough? Try finding a job with the pressure of repaying tens of thousands of dollars in debt.

Now, a new federal program — Income-Based Repayment — is making it easier to pay back these loans. If a student chooses to repay her or his loan with this plan, payments are then recalibrated — based on their income to something they can reasonably afford. All debt will be forgiven after 25 years. A graduate who earns less than 150% of the poverty line (about $16,000) won't have to make any payments. This is in addition to the year-old Public Service Loan Forgiveness program for those working in jobs such as law enforcement, public health and social work. Their loans will be forgiven after 10 years.

This initiative isn't perfect; the loans have to be federal loans, not private. But students with more than one federal student loan can consolidate them under the program. In some cases, borrowers with large debt and low-to-moderate incomes may benefit at the end of 25 years, with the balance of their debt forgiven. Others with higher incomes, though, will pay more.

My students at Bennett College for Women are among the many who struggle with debt and feel pushed to select careers with higher salaries. The new program allows students to repay their loans while following their hearts. Janine Quarles, 2009 Bennett graduate, says the new plan will make it easier for her to work as a community organizer at the Union of Minority Neighborhood in Boston. "Organizing is my passion, but I also have to consider my loans," she says.

The struggle to make college more affordable is far from over. While the Obama administration deserves kudos for raising the Pell Grant to $5,350 a year (a $500 increase per student), presidents at historically black colleges and universities have also seen cuts in programs that affect our schools. Even so, the new loan program will help our graduates help themselves.


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Income-Based Repayment Plan for Federal Student Loan Borrowers

 A new repayment option is now available from the Department of Education that lowers monthly payments for Americans with heavy federal student loan burdens. The new Income-Based Repayment (IBR) plan links payments to income and family size.

The new IBR program is available to borrowers repaying new and existing federal student loans (Direct or Federal Family Education Loans). Those with high student loan debt relative to their income also may be eligible for the IBR program.

For example, someone with student loan debt of $25,000 at 6.8 percent interest would have a monthly payment of $288 under the standard 10-year repayment plan. If the borrower were single with no dependents and had an Adjusted Gross Income (AGI) of $30,000, the monthly payment would drop to $172 per month, a reduction of $116 per month, or 40 percent, under the IBR Program.

Payments are recalculated each year.

Vicki Rolens, managing director for the Federation of American Consumers and Travelers (FACT), warns: "The lower payments will almost certainly result in longer repayment periods and increased interest charges. If you can live with the standard repayment plan, you may want to forego IBR."

Borrowers who wish to apply for IBR should contact their lender, who will determine eligibility. (Borrowers can use an IBR calculator to estimate monthly payments and get a good idea of their eligibility possibilities.)

A related program for borrowers working in public service jobs.

Borrowers who work in public service may be eligible to receive an additional benefit while using IBR: after 10 years, any remaining loan balance may be canceled. This Public Service Loan Forgiveness Program is available only in the Direct Loan Program to borrowers making payments while working full-time for the government, in schools, or for certain nonprofit organizations. (Borrowers with Federal Family Education Loans may be able to consolidate their loans into the Direct Loan Program in order to tap into this benefit.)


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