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New Federal Program to Alleviate Student Loan Debt


Credit card balances, medical bills, mortgages and student loans make up a lot of America's debt. In this recession-plagued economy, relief from any one of those financial obligations can be a tremendous benefit.

The White House has championed a bill to curb credit card company billing tactics and its mortgage modification program is expanding despite some early setbacks. And, the health care debate is reaching crescendo with the hope for many that an affordable, if not fully-supported, government medical plan will soon take shape.

Student loans, however, have not been subject to the broader economic sweep-up strategy that Washington has employed to fix the economy. That is, until now.

As of July 1, those holding federal student loans may be eligible for a program orchestrated by the Department of Education (DOE) that will cap monthly student loan payments based on the debtor's income. A more aggressive component of the program calls for the dismissal of all student loan money that has been outstanding for more than 25 years.

The Department of Education is employing a job incentive, as well. In some cases, it will completely waive a person's debt, after 10 years, in exchange for work in the public sector. Many of the most standard student loan arrangements call for a 10-year payoff. However, since so many young professionals struggle to find work after college, or at least work that will also cover student loan payments, the vast majority of student loans extend well beyond that ten year window.

A person's ability to qualify for the effort, loosely called "income-based repayment" or IBR, will be determined by income and loan size. A calculator has been set up at its Web site,

Ultimately, the IBR plan is part of the DOE's College Cost Reduction and Access Act that was signed in 2007. Given current national economic conditions, the timing was right for its larger unveiling. It is meant to cover Federal Family Education Loans and any direct loan from the Stafford and graduate PLUS programs. And, any type of federal loan issued by a private lender is also subject to the reduction plan.

For most people who take advantage of an IBR plan, they should expect to see student loan payments be reduced to at least 10 percent of their income. However, anyone making more than $16,000 annually may see the loans reach 15% of their income. Anyone making less than $16,000 will not have to make monthly payments. The government is assuming that at least 1 million people will enroll.

Keep in mind that even though any reduction in monthly expenditures initially sounds great, there are drawbacks. Extending the period of the loan, which this program does, accrues more interest and could ultimately increase its overall cost. And if you realize a salary increase after being below the $16,000 benchmark, you'll be responsible for the payments. It's important for anyone considering enrollment to understand how a sudden new monthly payment impacts the capacity to cover other bills.

If your college loans are a large part of your monthly debt-load, than this program may provide you a little breathing room. Combined with a well planned bankruptcy to discharge your other unsecured debt, you'll be well on your way to building your financial future. Struggling with student loans and other debt? Call the Law Offices of John T. Orcutt to set up a free initial consultation. Call +1-919-646-2654 today.

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