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Ask Money

Relief on student loans

Chris Farrell Oct 7, 2009

Question: My son was recently told by another graduate that there is a program that limits the amount of monthly payments for student loans. Are you aware of this and is there a place to call? Mary, St. Clairsville, OH

Answer: Sounds like your son needs some financial relief. There is genuine financial flexibility built into federal student loans. (The same can’t be said for private student loans. They are really high-cost installment loans. The term “student loan” is a misnomer.) However, all the various ways of lowering his monthly student loan bill come with a price: He’ll increase the overall cost of the loan over time. Still, he’ll get a break now and, since there is no pre-payment penalty with student loans, he can always accelerate his payments if his money circumstances improve.

The main options for lowering the payment are the 1) Graduated Repayment Plan (payments start out low and increase over time); 2) the Extended Repayment Plan (stretch out the payments); 3) an Income-Based Repayment Plan (your monthly payment rises and falls with your income); 4) the Income Contingent repayment plan (the payment can’t exceed 20% of discretionary income); and 5) the Income Sensitive plan (monthly payments are a percent of gross monthly income).

Whew–that’s a really quick tour. Obviously, he’ll need to look at these options in more detail. He can learn about these loan options at Finaid at The U.S. Department of Education at also offers good loan information.

I don’t know if this applies to your son, but federal and state governments will forgive loans or make loan payments in certain circumstances. The military is one example. So is teaching in inner city schools. A new program has the U.S. government paying the remaining interest and principal on federally backed student loans for employees that have worked for the government for 10 years. You must be in good standing with your student loans, too. The benefit extends to a lengthy list of other “public service” jobs, including law enforcement, public defender, nursing, and child care. It’s a way to attract young talent to the public sector and public service jobs. If Hollywood remakes the 1967 classic The Graduate, the advice to Benjamin might be “public service” instead of “plastics.”

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