Graduating college is a huge accomplishment but the debt you're sometimes left with can be alarming for many -- which is why the government is taking action. A new law going into effect next week is aimed at helping students repay their loans.
According to finaid.org
, the average student graduates with about $23,000 in student loan debt but soon students will be able apply for a new repayment program to help make paying off that debt more manageable.
The Federal College Cost Reduction and Access Act creates a new loan repayment program called the Income-Based Repayment program. It's designed for students who have high loan debts and low income. Under the program, a former student's monthly payments would be reduced to just 15 percent of their adjusted gross income. Those payments will pay off the interest owed first, then any loan fees, and finally the principal.
A student's income will be re-considered each year in order to qualify and once the former student makes enough money, their payments will revert back to standard amounts.
There is another way to reduce how much is owed: Under the program, borrowers working in some public service jobs could also have a portion of their loans written off after 10 years of service. Even if you've fallen behind on student loan payments, you could still be eligible for the program.
The program begins July 1.
There is one warning: Because former students will be making smaller payments, they'll also likely be paying back their loans over a longer period of time. On the other hand, if they meet certain criteria, their remaining student loan debt could be dropped entirely after 25 years.
More information on Income-Based Repayment
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