Student Loan Relief Gets Even Better

On a recent appearance on CNBC’s On the Money, my colleague
John Ulzheimer referred to student loan debt as “napalm.” That may sound a
little extreme, but just talk to borrowers saddled with hundreds of thousands
of dollars in student loan debt and you’ll hear some pretty extreme stories of
how they are struggling to cope.

The small bright spot on the horizon is the Income Based
Repayment Program (IBR) that caps payments based on income and allows for
forgiveness of balances after ten or twenty-five years, depending on the
borrower’s field of employment.

The program promises to offer relief for a significant
number of borrowers. And now it is likely to get even better. The Project on
Student Debt (the nonprofit that helped drive this reform) reports that during
negotiations with the Department of Education, consensus was reached on two important
issues. The Project on Student Loan Debt explains the proposed rule
changes as follows:

Current rule: When two married individuals both have student
loan debt and file taxes jointly, they could face up to double the monthly loan
payment of two unmarried borrowers in otherwise identical situations. This is
because their combined income is used to calculate each spouse's own IBR
payment, ignoring the fact that their joint income must be used to pay down
both borrowers' debts.

Negotiated change: When a married borrower whose spouse also
has federal student loans applies for IBR, they will still look at the joint
income, but they will also factor in the spouse's debt before calculating IBR
payments. The Project on Student Loan Debt offers a helpful calculator at
IBRinfo.org and will update that calculator as soon as they know more details.
You can sign up to receive updates on their website at IBRinfo.org.

Current rule: IBR eligibility and payments are based on a
borrower's loan balance when s/he first entered repayment. While good for most
borrowers, this works against those whose loan balances have grown since
entering repayment, which can happen when interest accrues during forbearances
and deferments. In some cases, a borrower's current loan balance would make
them eligible for IBR, but they would be prohibited from enrolling in the
program if their original loan amount didn't qualify them.

Negotiated Change: Borrowers' IBR eligibility will be based
on either their loan balance when they first entered repayment or their current
loan amount, whichever is greater. This will allow borrowers whose loan amount
has increased to make monthly IBR payments based on what they actually owe, not
what they owed in the past.

According to the Project on Student Loan Debt, the Department
of Education must issue proposed regulations reflecting these agreements and
then publish a final rule by November 1, 2009. 
That means these changes may not go into effect until July 2010, even
though IBR becomes available in July 2009. Make sure you sign up at IBRinfo.org
so you’ll receive updates as they become available. 

Gerri
Detweiler – Personal finance author and Credit Advisor for Credit.com,
Gerri contributes budgeting, debt recovery, and savings information online. She
is also the co-author of Reduce Debt, Reduce Stress:
Real Life Solutions for Solving Your Credit Crisis .

Tagged as: debt help, IBR, Income Based Repayment Program, student loan debt, student loan forgiveness, student loan help, student loans, The Project on Student Debt

Gerri Detweiler Credit.com's Personal Finance Expert, Gerri focuses on financial legislation, budgeting, debt recovery and consumer savings information. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.comTalk Credit Radio. Reach Gerri at creditexperts@credit.com.