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Income-based repayment recent graduate’s best friend

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Going through school these days requires either a trust fund set up by dead relatives or doing exceptionally well in high school and securing some scholarships to aid in offsetting the costs of higher education.  In most cases, however, scholarships and grants don’t cover the entire cost of education for an undergraduate, and with the steep decline in fellowships for graduate students, most have to resort to digging themselves into a pit of debt.  It’s the unfortunate reality of the times, with state funded scholarships and grants drying up and the rocketing cost of tuition every term, life in the poor house seemed an inevitability for future graduates.

Help is on the way with the income-based repayment plan, which started up this week to aid those who have federal student loans and to help them work out from beneath the ominous shadow of their debt.  

The breakdown is rather simple.  The system is based upon earners’ income, with those that make less having downward adjusted repayments.  Those earning less than $16,000 a year are not required to make monthly payments.  At the lower payment, any of the excess debt owed after 25 years is forgiven.

That may sound great, but not everyone would be wise to jump on the bandwagon.  Those with excessive debt going into a field where jobs are extremely limited would benefit, especially if the income for those professions are low.  Most people, however, will be able to pay off their federal loans within 25 years, with most loan terms actually set at 20 years.  It is up to the individual to assess his or her situation and determine whether or not they can emerge from their debt as an individual, or if they should enroll in the IBR plan.

Taking into consideration the building interest with a longer term loan, the decision is an important one.

Rob @ June 29, 2009

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