Income-based student loans

Question: You recently reported on a student loan option that was being offered as part of the government stimulus package, which is based on a person's income. I have searched you website and have been unable to find the story. I was wondering if you could please let me know where to find this information. Thanks. Ethan, Minneapolis, MN

Answer: It's called an income-based repayment plan. It uses a formula that takes into account income, family size and your state. The payment requirements are on a sliding scale, but for most people their monthly student loan tab should run at 10% or less of their income.

The Education Department gives this example: Let's say you owe $25,000 at 6.8% interest. You're single, and earn an adjusted gross income of $30,000. Under the standard 10-year repayment your monthly bill is $288. But you qualify for the income-based repayment plan your monthly payment drops to $172 a month; married, the bill falls to $102; married with one kid, $32; and so on.

This plan makes it much easier to meet your monthly obligation. The price is that the overall cost of your student loan goes up if you don't eventually attack it more aggressively. After 25 years what remains of the loan is forgiven. The loans must be federal student loans.

A good source of information about all aspects of paying for college--including income-based repayment--is finaid.org. The federal government has upgraded its information on student loans at federalstudentaid.ed.gov.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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