Loan Forgiveness and Income Based Repayment Programs – How Do They Work?

8231671430_e83d55aa51_bFederal Student Loan Options
Currently the federal student loan debt has surpassed the $1.2 trillion dollar mark, and the average student loan borrower is graduating with over $26,000 in student loan debt.  This debt is now accounting for an average monthly payment of $320/month, which is higher than ever.  At the same time, defaulted student loans are also at an all time high of 11%, up from 5.4% in 2001.

Recently a study found that 33 million Americans qualify for student loan forgiveness but are not aware of the various programs that exist and are available to them. The Teacher Loan Forgiveness, Public Service Loan Forgiveness, and Income Based Repayment program are the most popular and beneficial programs.

Public Service Loan Forgiveness
This program began in 2007 and was used as a way to benefit those who choose to work in the public sector.  The U.S Government wanted to award those who take up public sector jobs, and created the Public Service Loan Forgiveness(PSLF) program. The program allows anyone working for a local, state or federal organization to qualify for forgiveness on their loan after 120 qualifying payments.  The balance at the end of those 120 months would be completely absolved by the U.S Government.

o Must work in one of the following:

  • Public sector
  • Non profit 501(c)(3)
  • Private non-profit working in certain fields

o Must have DIRECT loans

  • Loans can be consolidated into the Direct Loan program to then qualify for PSLF

o Must be in an Income Based or Income Contingent repayment plan

o Must be a full time employee (30+ hours weekly)

Teacher Loan Forgiveness
Similar to the Public Service Loan Forgiveness program, the Teacher Loan Forgiveness program was created in an attempt to drive college students into the education profession.  A Teacher may now qualify for principle reduction on their loan between $5,000 and $17,500 dollars.

  • Must have Direct or FFEL loans
  • Must not be in default
  • Must not have had student loans prior to Oct 1st, 1998
  • Must have taught for 5 consecutive full time years at a title 1 school.

Income Based Repayment
The Income Based Repayment (IBR) program probably benefits the greatest number of federal student loan borrowers.  In this repayment, the lender will calculate your federal student loan payment based on your income and family size.  Your loan balance and interest rates are not used to calculate your repayment.  In the IBR you may qualify for a monthly payment of $0.00 which counts as an actual payment on your student loans.  Every year the lender would request updated income documents and recalculate the payment based on your current income levels.  If your income does not rise, your payment will not rise.  At the end of 25 years, any balance remaining on the loan would be erased in the Direct Consolidation program.

  • Any interest that is not paid in the IBR is not capitalized for the first three years
  • Payments as low as zero
  • Payments that take into account your family size and cost of living expenses.

If you think any of the above programs can help you, give your lender a call to request information and get into the programs you qualify for and deserve!

Bio:

Spiros Mitsis graduated with a Bachelors in Finance & Economics from the University of Connecticut.  He is one of the founders of Student Debt Relief whos primary objective is to educate and assist student loan borrowers on the many federal programs available to them, including loan forgiveness.

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This post was provided by Spiros Mitsis of Student Debt Relief, who was a guest on College Smart Radio “Tackling the Runaway Costs of College” on December 28th, 2013.  Listen to this broadcast on YouTube here.

Photo Credit: Chris Potter

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