New student-loan repayment plan aims to reduce debt burden

Originally published in The Daily Iowan 7/1/2009

Some students struggling with federal loans could soon lower their monthly payments or eliminate them altogether.

Under the Income-Based Repayment plan, available starting today, college graduates can cut their monthly payments down to a rate tailored to their income and family size.

The initiative was started by the Project on Student Debt, a nonprofit organization funded by the national Institute for College Access & Success.

The biggest difference in this new initiative is that it’s available to more students than its predecessor, officials said.

“The [original program] protects less income and takes a higher percent of what’s left,” said Edie Irons, the communications director for the national Project on Student Debt.

The new payment plan is similar to the existing Income-Contingent Repayment program at the UI, the only plan of its kind until now. Both plans allow students to make their monthly loan payments based on their income.

“Those who participated in the indirect loans already had that option,” said Mark Warner, the UI director of Student Financial Aid.

According to the new program, students pay 15 percent of the portion of their income that is above the federal poverty line, Irons said. Some don’t have to pay at all. Graduates whose income is less than 150 percent of the federal poverty level are exempt.

The original initiative only applies to students who receive loans through the Federal Direct Student Loan Program, which is offered by the UI.

Irons said students who receive money through the Federal Family Education Loan Program, which provides indirect federal loans, don’t qualify for the Income-Contingent Repayment plan but they will qualify for the new program.

“This plan is very broad, and it does apply to a lot of people,” Irons said.

This is a major change, she said, because more students take out loans indirectly from federal funds rather than directly.

While the program does help a larger portion of students, “it doesn’t help every single person who might need help,” Irons said.

For example, the new plan doesn’t apply to those with state, private, or the Federal Direct PLUS (Parent) Loan, which are given to parents who plan to pay for their child’s higher education.

Also starting today, the fixed interest rate for new Stafford loans is down from 6 percent to 5 percent for all new loans and the maximum amount for the Pell Grant award has also increased from $4,731 to $5,350.

Irons said this is the result of a bill Congress passed in 2007 to progressively lower interests rates every year.

But these changes may not be perceivable to the students they are intended to help. UI senior Lindsay Whitson said she has just begun to go over her loans with her parents.

“I don’t know anything about my loans,” said Whitson, who plans to graduate at the end of July. She said she is “definitely interested,” in the new income-based program.


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