Break the Chains of Student Debt!

Alex Knight,

Paying back student loans can be a real downer. Loans can make organizing after college virtually impossible as they force debtors to work a full-time corporate or nonprofit job, or join the military just to pay them off. When I graduated from college, I had $50,000 worth of student loan debt. I felt I was forced to get a full-time job, and pay them off as quickly as possible so in the future I could finally dedicate myself to social change work. Luckily I didn’t have to make this choice, as there are other options available! Here are a few worth knowing about.


First, you can defer or get a forbearance, to delay payments. Often with these you can delay paying your loans for years, although interest may accrue during that time, and you may be forced to make special payments. For example Sallie Mae used to require you to pay $100 for a 6-month forbearance on private loans, but now they’ve chopped this to $200 for only a 3-month forbearance, which often makes it almost pointless. Nevertheless, you can often easily qualify for an “unemployment” deferment, even if you are working part-time.

Second, you can try to run from your loans altogether and go into default. The only problem with this, besides destroying your credit rating, is if you have co-signers on your loans, such as parents. If you go into default, you’d also be screwing them over.

A third option has recently emerged, which should be taken advantage of as much as possible. It’s called Income-Based Repayment, and it can be used to reduce or eliminate your monthly payments for most Federal loans (not those pesky private ones, unfortunately). Through the federal government’s Direct Loan program, which was recently enlarged by Obama’s Health Care reform, you can consolidate your federal loans into an IBR (or Income-Contigent Repayment - ICR) plan. Payments then become “based” or “contingent” on your income, so if you work part-time and don’t make a lot of money, you won’t have to pay a lot, and you could even eliminate your monthly payments entirely if you earn less than 150% of the poverty line. If you’re a full-time activist like me, you almost certainly qualify. And after 25 years, your debt will be forgiven.

So check out IBR, and don’t let student loans stop you from dedicating your life to building the social movements our communities and world so desperately need!

Income-Based Repayment
Income-Based Repayment (IBR) is a new payment option for federal student loans. It can help borrowers keep their loan payments affordable with payment caps based on their income and family size. For most eligible borrowers, IBR loan payments will be less than 10 percent of their income - and even smaller for borrowers with low earnings. IBR will also forgive remaining debt, if any, after 25 years of qualifying payments.

Who can use IBR? IBR is available to federal student loan borrowers in both the Direct and Guaranteed (or FFEL) loan programs, and covers most types of federal loans made to students, but not those made to parents. To enter IBR, you have to have enough debt relative to your income to qualify for a reduced payment. That means it would take more than 15 percent of whatever you earn above 150% of poverty level to pay off your loans on a standard 10-year payment plan. Use our calculator to see if you’re likely to be eligible.

How does IBR make payments more affordable? IBR uses a kind of sliding scale to determine how much you can afford to pay on your federal loans. If you earn below 150% of the poverty level for your family size, your required loan payment will be $0. If you earn more, your loan payment will be capped at 15 percent of whatever you earn above that amount.

Except for the highest earners, that usually works out to less than 10 percent of your total income.

This chart shows examples of IBR payment caps as a percentage of the borrower’s family income, based on various incomes and family sizes.
What about interest? In some situations, your reduced payment under IBR may not cover the interest on your loans. If so, the government will pay that interest on your Subsidized Stafford Loans for your first three years in IBR. After three years and for other loan types, the interest will be added to the total amount you owe. While your debt may grow if your affordable payments are low enough, anything you still owe after 25 years of qualifying payments will be forgiven.

What are qualifying payments? The Department of Education has indicated that the following types of payments will count towards IBR’s 25-year forgiveness period, as long as you are in IBR at some point during those 25 years.

Payments made in the Income Contingent Repayment plan (ICR) before July 1, 2009.
All payments made on or after July 1, 2009 in the IBR, Income Contingent Repayment (ICR), and Standard (10-year) Repayment plans.

Periods when the borrower has a calculated payment of zero in IBR or ICR (this occurs when your income is at or below 150% of the poverty level for your family size).
Periods on or after July 1, 2009, when the borrower has been granted an economic hardship deferment.

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