New Federal Program to Alleviate Student Loan Debt

New Federal Program to Alleviate Student Loan Debt

Submitted by Jen Jones on Wed, 07/01/2009 - 10:05am

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, www.ibrinfo.org.

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.

Debts Hurt! Got debt? Need help? Get started below!

Serving All of North Carolina

  • Charlotte
  • Fayetteville
  • Durham
  • Wilson
  • Greensboro
  • South Raleigh (Garner)
  • Southport
  • Wilmington

North Raleigh

6616 Six Forks Rd Suite 203 Raleigh, NC 27615 North Carolina

Tel: (919) 847-9750

North Raleigh

Charlotte

7400 Carmel Executive Park Dr Suite 105 (In association with) Charlotte, NC 28226 North Carolina

Tel: (704) 318-2702

Charlotte

Fayetteville

2711 Breezewood Ave. Fayetteville, NC 28303 North Carolina

Tel: (910) 323-2972

Fayetteville

Durham

1738 Hillandale Road Suite D Durham, NC 27705 North Carolina

Tel: (919) 286-1695

Durham

Wilson

2215 Nash St. NW Wilson, NC 27896 North Carolina

Tel: (252) 234-9194

Wilson

Greensboro

600 Green Valley Road Suite 210 Greensboro, NC 27408 North Carolina

Tel: (336) 542-5993

Greensboro

South Raleigh (Garner)

143 Highway 70 Garner, NC 27529 North Carolina

Tel: (919) 747-4400

South Raleigh (Garner)

Southport

4320 Southport Supply Road SE Suite 300 Southport, NC 28461 North Carolina

Tel: (910) 218-8682

Southport

Wilmington

4320 Southport Supply Road SE Suite 300 Southport, NC 28461 North Carolina

Tel: (910) 447-2987

Wilmington