Make us your home page
Instagram

Help is on the way for some with student loans

If you are struggling with student loans that you took out before October 2007, there is a new, more generous option in the works that could help you manage your debt payments.

In June, President Barack Obama signed an executive order that expanded the "pay as you earn" program, or PAYE. The program caps monthly student loan repayments at 10 percent of income and allows any balance after 20 years to be forgiven.

The program has been available since late 2012 for some, but the president's order widens the pool of eligible borrowers to include those with older loans or who stopped borrowing by October 2011. The administration says the expansion could make the option available to millions more student borrowers.

There is a catch, however. It won't become available until late next year.

What if you need help now?

You can consider other programs already in place, such as income-based repayment, or IBR. It is one of several income-driven programs available to help borrowers manage student debt. Details of the programs vary depending on the type and date of the loan. Terms are less generous than with PAYE, but they can still make a big difference in your monthly payment if you have high debt relative to your income.

IBR is the most broadly available option, covering new and older loans. IBR "classic," as it is known by some, caps monthly repayments at 15 percent of your income and allows any balance remaining after 25 years to be forgiven. IBR classic is an option for both direct loans — made by the federal government — and older loans — made by private lenders and guaranteed by the federal government — under a program that concluded in 2010. The PAYE option, by contrast, is available only for direct federal loans.

(Last month, an updated version of IBR became available for new borrowers, offering a cap of 10 percent of your income and a 20-year discharge period. But that is just for students taking out their first loan after July 1.)

Evaluating the different repayment plans, with their varying requirements, can be confusing.

Here are some questions about income-driven repayment programs:

How do I know if income-driven repayment is right for me?

If your total debt exceeds your annual salary, then you might benefit from programs like IBR and PAYE, said Mark Kantrowitz, publisher of Edvisors.com.

Lauren Asher, president of the Institute for College Access & Success, urges borrowers to avoid getting bogged down in the programs' details. Instead, you can go to studentloans.gov and apply for the program offering the lowest payment for which you are eligible. The Education Department's repayment estimator at tinyurl.com/lekxgto can help give an idea of what your payments would be under the various options.

The institute provides a summary of the current income-driven repayment options at tinyurl.com/m9h9cu7.

How is my income factored into my payments under the IBR and PAYE programs?

Payments for both programs are based on a percentage of your "discretionary" income, or what you earn above 150 percent of the federal poverty line — $17,505 for a single person in 2014. So if your income is $40,000, your discretionary income is $22,495.

Under the original IBR program, for instance, someone with that income and $60,000 in debt would have an estimated initial monthly payment of $281, according to an example from the Education Department. (Under PAYE or the revised IBR program for new borrowers, it would be about $188.)

By comparison, your payment under the standard, 10-year repayment plan — with no income-driven relief — would be about $738, according to the estimator.

If I'm in default on my student loans, can I qualify for income-driven repayment plans?

Your loans must be in good standing to be eligible.

Help is on the way for some with student loans 08/25/14 [Last modified: Monday, August 25, 2014 1:56pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, New York Times.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Regulator blasts Wells Fargo for deceptive auto insurance program

    Banking

    Wells Fargo engaged in unfair and deceptive practices, failed to properly manage risks and hasn't set aside enough money to pay back the customers it harmed, according to a confidential report by federal regulators.

    Wells Fargo engaged in unfair and deceptive practices, failed to properly manage risks and hasn't set aside enough money to pay back the customers it harmed, according to a confidential report by federal regulators.
[Photo by Spencer Platt/Getty Images, 2017]
  2. McDonald's soft serve in Florida is made with handshakes and happy cows

    Consumer

    Floridians licked nine million McDonald's vanilla cones last year.

    Calves play with a rubber toy at the Milking R Dairy in Okeechobee, FL. Owners Sutton Rucks, Jr., and his wife Kris Rucks sell their milk to SouthEast Dairies cooperative, Edward Coryn of Dairy Mix in St. Petersburg buys it, transforms it into soft-serve ice cream base, and sells it to all the McDonald's. SCOTT KEELER   |   Times

  3. Hurricane Irma thrashed Tampa Bay homes sales in September

    Real Estate

    Hurricane Irma not only downed thousands of trees throughout the Tampa Bay area: It also sent home sales plunging in September.

    This home on Tampa's Davis Islands home sold in September for $5.2 million, making it the priciest sale of the month in the Tampa Bay area.
[Courtesy of Judson Brady Photography]
  4. Florida unemployment rate drops despite huge loss of jobs

    Economic Development

    Florida lost a whopping 127,400 jobs last month as Hurricane Irma swept through, according to state figures released Friday.

    Florida's unemployment rate dropped from 4 percent in August to 3.8 percent in September. Pictured is 
Shantia Blackmon (left),from St. Petersburg, talking with Jocelyn Kelley from North Carolina at a Pinellas Schools County Job Fair in June. | [DIRK SHADD   |   Times]
  5. Hooper: Jean Chatzky chats about the intersection of wealth, health

    Personal Finance

    Public safety officials can readily identify a city's most dangerous intersections.

    Personal finance adviser Jean Chatzky is one of several high profile speakers on the slate for the Women's Conference of Florida in Tampa next week. [Handout photo]