Student Loan Help and Information

My first financial post today is about what you can do about your student loan payments. There is a new program out there called Income Based Repayment (IBR) and applications are now available. For more information and links for the application go here. In a nutshell, if you use this program you will never pay more than the 15% of the difference of your household Adjusted Gross Income (AGI) and 150% of your local poverty level according to your geographic location.

What does that mean? Well, here's an example: Let's say your family has a gross income of $40,000 a year with an AGI of $34,500. If you are married, have one child and live in Oregon, the household poverty level is $18,310. Multiply that by 150% and you get $27,465. So, now you take your AGI of $34,500 minus $27,465 for a difference of $7,035. Take that number and multiply it by 15% and you get $1055.25. Then divide that number by 12 (for 12 months of the year) and you get $87.94. This would be your maximum monthly payment for the next fiscal year (July-August)! So, if you are paying more than $88, this would lower your payment.

The amount you pay each month is calculated and adjusted each year based upon your AGI filed on your tax return. The repayment term will go to 25 years and whatever principle is remaining afterwards is forgiven! AND, for those of you who work for government or nonprofits, the deal will get even sweeter in the next few months. The repayment term will go to just 10 years and the remaining principle owing on the loan will be forgiven then!

This program is not for everyone, however... if you monthly payment is close to the payment after this calculation, you will need to determine what your income will look like in the future and determine the difference in what your monthly payment will look like then versus what it looks like now and calculate when your "break-even" point will be. If it is BEFORE the 10 or 25 year payoff, this might not be the right option for you.