Income-Based Repayment Plan for Student Loans

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Many former students have amassed quite a lot of debt due to student loans. The average student loan outstanding in the country is over $22000 and with the economy in the shape it is in currently, many college graduates even have to turn to payday loans, as a way to make ends meet. There were programs that were able to lower payments on student loans. Graduated payment schedules allow you to pay lower payments at the beginning of the loan that gradually increase over time. By the tenth year, your payments can be double or triple what they were at the beginning. There are also programs available adjust your payments based loosely on your income.

As of July 1st, there is a new program named the Income-Based Repayment plan that calculates your payment using your income which maximizes the payment to 15% of your discretionary income. In this calculation, discretionary income is calculated by subtracting 150% of the poverty level for an individual from his gross income. Many people will pay about 9% of this discretionary income and if the 150% poverty calculation amounts to $0, no payment is owed. Another perk of this program is that all loans will be forgiven and paid by the government after 10 years if you are employed by a public-sector employer and 25 years if not. Although you will have to pay taxes on any forgiven loan amounts, this program can benefit many who are not high earners in their lifetime.