NEW YORK — Repaying a student loan could soon be a little less painful.
Starting this week, anyone with a federal student loan can apply for a program, run by the Department of Education, that caps monthly payments based on income and forgives remaining balances after 25 years. Those choosing to work in public service can have their loans forgiven after just 10 years.
Eligibility for income-based repayment is determined by a person’s income and loan size. A calculator at www.ibrinfo can help borrowers determine their eligibility for the plan, which becomes available Wednesday.
“It’s a way to borrow for college without going to the poorhouse,” said Lauren Asher, president of the Institute for College Access & Success, a California-based nonprofit that runs the Project on Student Debt.
The program stems from the Education Department’s College Cost Reduction and Access Act, signed in 2007, which authorized the creation of a new income-based repayment plan for both Federal Family Education Loan and Direct Loan borrowers on all Stafford and graduate PLUS loans.
Monthly payments would amount to less than 10 percent of income for most of the estimated 1 million people expected to enroll, experts say. Payments would never exceed 15 percent of any income above about $16,000 a year (or 150 percent of the poverty level).
Those who earn less than $16,000 would not have to make any monthly payments.
The new payment option is intended to provide relief for those who earn modest salaries and struggle under the weight of student loans for years.
The program isn’t for everyone, however.
In some cases, accruing interest could push the cost of the loan higher. And because loans are likely to be paid off within 25 years, the loan forgiveness aspect of the program won’t apply to most people.
