In June I wrote about Income-Based Repayment, a federal program that allows college graduates to restructure their student loan payments based on their income and how large their families are.
Although IBR went into effect on July 1, 2009, I did my usual procrastinating and waited until the day before my deferment with the federal Direct Loan program was due to expire before I made inquiries.
The verdict? Success! During a 17-minute conversation with a Direct Loan representative (I asked a lot of questions), I began the process that should shrink my monthly loan payment by 59 percent from what it would have been.
The program is designed for borrowers who have a high debt-to-income ratio, such as those who have been laid off or had their work hours cut back. The basics: Payments are capped at 15 percent of discretionary income, which is your gross income minus the amount equivalent to 150 percent of the federal poverty line (which works out to $16,245). Fifteen percent of that, divided by 12 months, is your new monthly bill. The repayment period is also extended from the usual 10 years to 25 years. For other details, check out the FinAid site and IBRinfo.
With my current 10-year repayment plan, I was on the hook for $488.89 a month starting August 7. The Direct Loan representative Beth was so nice that she asked me if I knew what my new monthly payment amount would be. I had indeed run the numbers, and I pegged it at $198.94. The program requires that you re-apply every year and tell them what your updated income is. If it has gone up, your payments go up.
The first thing Beth told me was to extend my deferment to cover my fast-approaching due date, because the IBR paperwork takes a couple of weeks to process. Following a pleasant interlude in which the Muzak version of Peter Frampton’s “Baby, I Love Your Way” played, Beth extended my deferment over the phone. Once IBR is approved, I can send a letter asking for the deferment to be shortened so I can begin making payments.
Direct Loan uses your tax returns to prove how much you earn, and if your earning situation has changed, or if (like me) you’re a freelancer and get paid (ahem) irregularly, you can supplement the application with a “self-certification letter” that describes how much you bring home and how often.
The feds’ IBR application can be found here. Make sure to compare repayment plans to determine whether IBR or other income-based plans are right for you.
Credit.com offers straightforward tips and advice to help you make smarter financial decisions. Visit Credit.com to sign up for your FREE Credit Report Card and find out where you stand today!
{ 1 comment… add a comment }
I’m hearing A LOT of people are getting the run around on this. I hear ACS just flat out refuses to do it through stonewalling.