Edvisors Network / Student Loan Network Holiday Party 2006


Image by Christopher S. Penn
Photos from the Holiday Party at Fleming’s in Boston.

All photos copyright Christopher S. Penn and the Financial Aid Podcast. Licensed under Creative Commons NONCOMMERCIAL no-derivatives by attribution.

New Repayment Break on Student Loans Begins July 1

It’s not an easy time to be graduating from college with student loans. With the unemployment rate soaring toward 10 percent and the average starting salary for college graduates down 2.2 percent this year, student loan borrowers — whose average debt from student loans tops ,000 — are now having an even tougher time affording their student loan payments.

The good news? Starting July 1, 2009, graduates with federal college loans may be able to qualify for a new government program that can reduce the monthly payments on their student loans based on their income.

Income-Based Repayment for Federal Student Loans

The income-based repayment program, created by Congress in 2007 as part of the College Cost Reduction and Access Act, will cap a borrower’s monthly student loan payments at a percentage of her or his income, when the borrower’s income is at least 50 percent higher than the current federal poverty line for the borrower’s family size.

These income-based student loan payments will be calculated as 15 percent of the amount by which a borrower’s adjusted gross income exceeds 150 percent of the poverty line.

(For individuals, the 2009 poverty line is ,830 in all states except Alaska and Hawaii. The complete federal poverty guidelines for 2009are available on the website of the U.S. Department of Health and Human Services.)

For example: 150 percent of the current individual poverty line of ,830 is ,245. If a borrower’s annual adjusted gross income is ,000, the monthly payments on her or his eligible student loans would be capped at 9.44 — 15 percent of the difference between ,000 and ,245, divided by 12 months. If a borrower’s annual adjusted gross income is ,000, the monthly payments on any eligible student loans would be capped at 6.94 (,000 – ,245, multiplied by 15 percent, divided by 12).

Income-based monthly payments will be adjusted annually, based on a borrower’s federal tax return from the previous year. As a borrower’s income rises, the income-based repayment cap will also go up. If the income-based repayment cap reaches a level higher than what a borrower’s monthly payment would be under a standard 10-year student loan repayment plan, the borrower will no longer qualify for income-based repayment for her or his student loans.

Borrowers whose adjusted gross income falls below 150 percent of the poverty threshold won’t be required to make any payments on those student loans that qualify for income-based repayment.

Even if no payments are due, however, interest will continue to accrue on those college loans. Unpaid interest will also accrue if a borrower’s income-based monthly payments aren’t sufficient to cover the full monthly interest on the qualifying college loans. Any accrued unpaid interest will be added to the student loan principal and capitalized when the borrower no longer qualifies for income-based repayment.

Subsidized Interest and Student Loan Forgiveness

For those borrowers who hold subsidized student loans or a federal consolidation loan that included subsidized Stafford loans or Perkins loans, the government will cover any unpaid interest on those subsidized loans (or on that portion of a student loan consolidation that’s comprised of subsidized loans) for the first three years that a borrower is in income-based repayment.

The longest that a borrower can remain on the income-based repayment plan is 25 years. After 25 years of income-based payments, the government will forgive any remaining principal and unpaid interest — although borrowers should note that under current tax law, this forgiven student loan debt would be taxable.

Borrowers who are employed full-time in qualifying jobs in the public service sector may have their remaining student loan debt forgiven after just 10 years in the income-based repayment program, and this forgiveness would be tax-free, thanks to a ruling from the U.S. Treasury last year.

Qualifying for Income-Based Repayment

To find out if you qualify for income-based repayment on your federal college loans, you’ll need to contact your lender and provide information about your financial situation — you’ll need to demonstrate “partial financial hardship,” as defined by federal regulations.

Only federal Stafford and Grad PLUS student loans in good standing, along with consolidations of these college loans, are eligible for income-based repayment. Federal Perkins loans are eligible only if they’ve been included in a federal student loan consolidation. Other college loans are ineligible:

Private student loans. The income-based repayment program applies only to federal student loans. If you’re having problems meeting the monthly payments on your private student loans, you should contact the lenders to see if they’re willing to work out more affordable repayment plans for you. Keep in mind, though, that private student loans typically have less flexible repayment options than federal student loans.
Federal PLUS loans. If your parents took out PLUS parent loans to help you pay for college, they won’t be able to take advantage of income-based repayment on their PLUS loans. Consolidation loans that included PLUS parent loans are also excluded from income-based repayment. Any Grad PLUS loans you took out as a graduate student, however, as well as consolidations of Grad PLUS loans, are eligible.
Defaulted student loans. Your student loans don’t have to be new to be eligible — even long-time graduates may be able to qualify for income-based repayment on college loans taken out years ago. But you can’t be in default on your loans. To qualify for an income-based repayment plan, any federal college loans you have in default will need to be rehabilitated first.

The hostile takeover of the student loan industry by the empire (cough) I mean federal government!
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Learning to Manage Your Personal Finances

Let’s face the facts; one of the hardest things to manage is, of course, your personal finances. However, a lot of people do not know what it means to manage their personal finances. The good thing about this is that you can ask yourself four main questions that will be able to answer this for you. These are questions that can help you see if you have managed your personal finances the right way. Learning to do this is one of the hardest things that you can do. However, if you get to the point where you can do it, then you will live a very happy life.

The first question that you have to ask when looking at how to manage your personal finances is, can you meet your living means without using a credit card? This means, can you get by month after month without having to have a lot of credit card debt? If you can not, then you have not learned how to manage your personal finances the right way yet. This is something that people have to learn how to do. You have to learn to be able to break away from the credit cards and live debt free. Only then are you going to be able to handle your personal finances.

Then next thing that you have to look at is if you have any money saved up? Usually people do not get money saved up until it is late in their life. However, thinking about saving money up is a good way to get your Personal Finance in order. Remember, you need to make sure you can meet your living needs first. As soon as you can do that, then start saving money. After all, you can not start saving money before you meet your living needs. The sooner that you start saving money, the sooner you will get your personal finances in order.

The most important thing that you have to look at when you are trying to manage your personal finances is your job. You need to look at if you have a steady job that has reliable income. Now this is something that can be hard to do. That is because if you work in retail, you never know when you could get let go. So to have a steady job you have to be with a bigger company or your own boss. This can really help you get your personal finances in order. Your personal finances are the main thing that you need to be worried about. Get those in order first before you worry about other things.

The last question that you need to answer when dealing with Personal Finances is, do you have emergency funds? This means if something goes down, do you have the money to cover it? If you do, then you have your personal finances in order. Of course, this is a thing that goes hand and hand with saving. Keep all of these keys in mind when you are dealing with personal finances, and you will be on the road to financial freedom.

Budgeting tips in thisfree series of personal finance video from our professional Certified Public Accountant (CPA). Expert: Tom Noah Bio: Tom Noah has been a Certified Public Accountant (CPA) for over 27 years. In that time he has held positions at several companies as an accountant and a director of financial planning. Filmmaker: Drew Noah
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