A law passed in 2007 and takes effect July 1st, 2009 that will greatly help many people. On July 1, 2009 the College Cost Reduction and Access Act of 2007 goes into effect. In the CCRAA, there is a provision that allows people to become eligible for income based repayment on their student loans. Income Based Repayment (IBR) allows borrowers to restructure their payments based on their income level. In addition, there are a few other variables the IBR considers, such as how many family members are in the household. Under the new law, student loan borrowers will not have to pay more than 15 percent of their discretionary income toward student-loan payments. However many will pay less. For example, it is estimated that a family of four, with a combined income of $60,000 a year, would have payments amounting to 6.7 percent of income.
In addition, as your income increases the payments will readjust upward. Also, the payment period is 25 years, instead of the normal 10 year period. Keep in mind choosing lower monthly payments over an extended period of time may not be the best strategy. This will increase the length of time you are repaying the loan and may not cover more than just the interest. In fact, the borrower could end up with a higher loan balance than before if you are paying less than the interest balance. However, there is a clause in the law that says any balance remaining at the end of the 25 year period will be forgiven!
According to ibrinfo.org, the only drawback is if you are married. The law assumes that you’ll be able to use both of your incomes to make payments, even if your spouse has a student loan as well. This inevitably leads to higher payments for both people. It seems unfair, but maybe the law will change in the future.
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