Income-Based Student Loan Repayment

Apr 25, 2012 by

Indebted college graduatesSince 1985, the cost of college in the U.S. has risen 439%, slamming today’s college-bound kids and their families with huge higher education costs. That 439% increase is about double the highly publicized jump in medical care costs and four times the rate of inflation over the same span. Here’s another way to put the cost of college in context: In 2011, tuition accounted for 43.3% of college revenue, way up from 23.2% twenty-five years ago.

25 Years of Tuition Increases

Net Tuition as a Percent of Public Higher Education Total Educational Revenue, U.S. Fiscal 1986-2011

Skyrocketing College Costs = Ballooning Student Debt

The inescapable result of these college cost trends is that today nearly all young adults in the U.S. who choose to go to college have no choice but to take on student loan debt to pay for it. Also, whether college is “worth it”—given its very high cost, the less than robust job market, and the prospect of graduation with massive debt—has become a legitimate topic of debate in the U.S. (See “Here We Go Again: Is College Worth It?”)

Even worse, student loan debt is particularly onerous among the various types of debt. In general, bankruptcy cannot discharge student loan debt, except in extraordinary circumstances. Simply being unable to find a job paying enough to make room in one’s budget for student loan payments would not qualify as “extraordinary.” And for federal student loans, the government has and uses the legal remedy of garnishing the federal tax refunds and benefits of delinquent borrowers.

Student Loan Help: Income-Based Repayment Plan

Income-Based Repayment (IBR) of federal student loans has been around since 2009, but with the explosion in student borrowing has gained notoriety. In short, IBR caps student loan payments of eligible borrowers based on income and family size, helping to make payments affordable. Also, after 25 years of qualified payments, any remaining student debt is forgiven.

Income-Based Repayment Plan Eligibility

IBR eligibility is based on family size, income, and loan balance outstanding. To qualify, your student loan payment under a standard 10-year repayment plan must be greater than the maximum payment under the IBR Plan.

To learn more about the IBR Program and determine whether you’re eligible, visit the IBR page of Student Aid on the Web.

NEW: Pay-As-You-Earn Proposal

Last October the Obama Administration proposed further easing of student loan debt repayment burdens. The Pay-As-You-Earn proposal is not law, but as proposed would cap student loan payments at 10% of discretionary income and forgiveness would kick-in after 20 years of payments. Details of this program have not been finalized, but you can read a White House Fact Sheet on the proposal and track its progress.

Public Service Loan Forgiveness

For graduates willing to work in certain jobs, student debts outstanding after 10 years of monthly payments (all made while working in the qualifying job) can be forgiven under the Public Service Loan Forgiveness program. In general, qualifying jobs include work in a non-profit, tax exempt organization; federal, state, local, or tribal government; or AmeriCorps or the Peace Corps.

To learn the details, visit the PSLF age of Student Aid on the Web.

What Are Your Thoughts?

Have you taken advantage of any of these programs to help you manage student loan debt? What do you think of the new reality that, for most, a college education means entering the workforce with significant debt? Are you counseling your children that college may not be the best choice for them?

Digiprove sealCopyright secured by Digiprove © 2012 Kurt Fischer
All original content on these pages is fingerprinted and certified by Digiprove