New Federal Financial Aid: Income-Based Student Loan Repayment

Income-based repayment is a new student loan repayment plan for the main types of federal loans that will help you finance your criminal justice or paralegal degree. Under the new plan, your monthly student loan payment cannot exceed 10 percent of your monthly income.

In addition, if you haven't paid off your federal student loans within 25 years, under this plan your remaining debt will be canceled. And, if you work in public service—as a teacher, in government, or for a nonprofit organization—your federal financial aid loans will be canceled after just ten years.

This plan is designed to assist people whose federal financial aid loans are high relative to their salary. The amount you pay under the IBR plan takes several factors into account: your income, family size, and the region you live in (Alaska and Hawaii have a separate calculation). If the amount you'd pay under the new plan is lower than the monthly payment under a standard student loan, then you are eligible for IBR.

Your student loans can be new or old, and for any type of education (certificates, job training, undergraduate or graduate). IBR even works for loans for online education, such as online paralegal degrees or online criminal justice degrees.

If you are eligible, using IBR to pay back your student loans offers several benefits:

• Your monthly payments are based on your family size and what you earn, and the total monthly payment is capped at 10 percent of your income.

• The federal government will cover your loan interest for the first three years of repayment, if you can't. Interest is added to the principal after that three-year period.

• After 25 years, the government will cancel the remainder of your federal student loan.

• If you work in public service, your debt under the Direct Loan program will be forgiven after 10 years.

Income-based repayment for federal financial aid is not for everyone, and it requires some diligence on your part. Be aware of the following considerations before opting for IBR:

• You must send documentation to your lender every year.

• A longer repayment period means you will pay more cumulative interest.

• Debt balances forgiven after 25 years of repayment are taxed as income. (This is not true of public-service loan forgiveness.)

• Married couples where both spouses have federal student loans will owe twice the amount of a single debtor, if the couple files their taxes jointly.

To get the most of IBR, keep the following things in mind as you apply for federal financial aid:

• Finance your education with federal loans; they are the only ones covered by IBR. Federal loans include Stafford, Grad PLUS and Consolidation loans.

• As much as possible, stay away from private loans; they are not eligible for income-based repayment.

• Apply for Direct Loans: they are required if you pursue public-service loan forgiveness.

• Do your research: Learn the difference between monthly payments under income-based repayment and a standard 10-year loan; if the difference is small, you will pay less with a standard 10-year plan.

Income-based repayment of federal financial aid may remove an important obstacle to your education so you can get the training you need. If you use federal loans judiciously, you'll be able to finance your education, manage your loan payments, and enjoy the new career you've been dreaming about.

Research the different criminal justice and paralegal degrees that lead to careers in law enforcement, corrections, forensics and paralegal arts. Don't put off your education any longer. IBR can help you start your criminal justice degree today!

For more information on the income-based college loan repayment plan, visit the U.S. Department of Education's IBR website.

Related Articles:

• Student Financial Aid Overview
• Work-Study Programs