Tuesday, 6 October 2009

New Repayment Scheme for Student Loans

In this period of economic slowdown, it’s not easy to pay off the student loans. As per an estimate, the average starting salary for college graduates down 2.2 percent this year. Hence students are having a tough time in affording their student loan payments.

Here is good news for students. Starting from July 2009, students with federal college loans can qualify for a new government program that can reduce the monthly payments on their loans based on their income. As per the income-based repayment program, if the borrower's income is at least 50 percent higher than the current federal poverty line for the borrower's family size, then borrower’s monthly student loan payments will be at a percentage of his monthly income. If the borrower's adjusted gross income exceeds 150 percent of the poverty line, then 15 percent of the borrower’s adjusted gross income is deducted.

Based on a borrower's federal tax return from the previous year, the Income-based monthly payments will be adjusted on a yearly basis. If your income rises, so will be your income-based repayment cap. And when the income-based repayment cap reaches a level higher than what your monthly payment would be under a standard 10-year student loan repayment plan, you can no longer qualify for income-based repayment scheme for student loans.

For those of you who hold subsidized student loans or a federal consolidation loan that included subsidized Stafford loans or Perkins loans, the government will cover any unpaid interest on those subsidized loans for the first three years when you are in income-based repayment. And the longest that you as a borrower can remain on the income-based repayment plan is 25 years.

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