David Randall at Forbes.com has an article about the new Income-Based Repayment benefit that begins July 1st under the College Cost Reduction and Access Act. He explains how it will work:
First, income-based repayment will only be available for federal student loans that are in good standing. Under this plan, borrowers' monthly payments will be capped at 15% of the amount by which their income exceeds the federal poverty level (currently $16,245).There are additional circumstances for married couples filing jointly, students in deferment, and medical students to consider. We encourage you to read the entire article (and use their cool income-based repayment calculator to see your potential monthly savings).
Let's say you have an adjusted gross income of $30,000. That means your pay exceeds the federal poverty level by $13,755 a year, or $1,146.25 a month. Under the new program, you would owe 15% of that amount, or $171.94, per month, regardless of your total outstanding loan balance.
If you left school owing $40,000 in federal loans, you would pay $460.32 a month under the standard 10-year plan. By choosing the income-based repayment plan, you would save 63% per month (by lengthening the life of the loan, however, you will end up paying more in interest over time.)
