In addition, if you work for government or a nonprofit and repay your debts under the direct loan program for 10 years, you could have your loan balance wiped out faster under another federal program called Public Service Debt Forgiveness.
How much would I have to pay each month?
That depends on your income, your debt and the number of people in your household. However, the Education Department says if you are single and earning $20,000 annually, the most you'd have to pay against student loans is $47 a month. If you earned $25,000, the required payment would be $109. If you earned $35,000, the required payment would be capped at $234.
Comparatively, if you had $50,000 in student debt at a 6.8 percent interest rate, you'd have to pay $575.40 a month under the standard repayment plan, no matter how much you earned.
Am I going to be locked out of the program if I earn more?
No. The formula determining whether you qualify looks at your loan payments versus your discretionary income. You could have a substantial income and still qualify if you also have a lot of debt. Borrower's payments are adjusted once annually to reflect changes in income and family size.
Can I do this with all my loans?
The program is only available for federal student loans under the Stafford, Grad Plus and federal consolidation loan programs. It does not apply to parent's loans for students (called Plus Loans), and only applies to Perkins Loans if they're consolidated into the Federal Family Education Loan or Direct Loan programs. It also does not apply to private loans, state loans and loans that are not backed by the federal government.
How do I figure out if I qualify and how much my payments might be?
The Project on Student Debt has set up a Web site dedicated to answering questions about income-based repayment at www.ibrinfo.org. The site has a calculator that estimates whether you'll qualify for the program and roughly what your payment amount will be.
The Education Department also offers a Web-based calculator on its site that explains all the repayment options for student borrowers. That site is at www.studentaid.ed.gov. (Scroll down and look for "repaying your loans" on the left side of the page. After you click on that, you'll see "repayment plans and calculators." Click again and it will link to repayment calculators for the various options, including standard and extended repayment.)
How do I apply?
Gather your loan information, showing balances, type of loans and lenders. Then contact your lenders. If your lender will not offer income-based repayment, call the Education Department at 1-800-4-FED-AID and look into consolidating your qualifying loans into the Direct Loan program, which is administered by the federal government.