Income-based loan repayment plan may grant relief

Tuesday, July 7, 2009 | 12:01 a.m. CDT

COLUMBIA — College graduates struggling to pay their federal student loans may find short-term relief with a new income-based repayment plan announced Wednesday.

Under the nationwide plan, students may qualify for reduced monthly loan payments compared to a standard 10-year repayment plan, said Leanne Cardwell, assistant commissioner of the Missouri Department of Higher Education. Students may also qualify for a zero payment plan, depending on individual circumstances, she added.

Facts about the income-based repayment plan

What federal student loans are eligible to be repaid with an income-based repayment plan?

Stafford, Grad PLUS or consolidation loans under the Direct Loan or Federal Family Education Loan programs are eligible for repayment under the plan, except loans currently in default, parent PLUS loans or consolidation loans that repaid a parent PLUS loan. The loan can be new or old and for any type of education (undergraduate, graduate, professional, job training).

Who is eligible for an income-based repayment plan?

You may enter an income-based repayment plan if your federal student loan debt is high relative to your income and family size. While your lender will perform the calculation to determine eligibility, you can use the online calculator at to estimate if you would benefit from the plan.

What are benefits of the income-based repayment plan?

  • Pay as you earn — Your monthly payment will be less than the amount you would be required to pay under a 10-year standard repayment plan and may be less than other repayment plans.
  • 25-year cancellation — If you repay under the income-based repayment plan for 25 years and meet certain other requirements, any remaining balance will be canceled.
  • 10-year public service loan forgiveness — If you work in pubic service and have reduced loan payments through the income-based repayment plan, your remaining balance after 10 years could be canceled if you made loan payments for each month of those 10 years. The Public Service Loan Forgiveness Program is available only if you have Direct Loans.

What are disadvantages of income-based repayment plan?

  • You may pay more interest.
  • You must submit annual documentation.


With the current economy, the repayment plan is aimed at supporting student borrowers interested in public service occupations, Cardwell said.

“These careers have a low pay, but they provide high social impact,” she said.

Direct Loan recipients with 10 years of public service employment and a stable record indicating 120 payments after Oct. 1, 2007, will be granted loan forgiveness, according to the repayment plan.

Low-income borrowers may also benefit from the new plan.

“If it takes a borrower more than 25 years to pay off the loan, the remaining debt could be forgiven,” Cardwell said.

To calculate a monthly payment on the loan, income and household size will be taken into consideration, Cardwell said. 

Although the income-based repayment plan provides short-term relief, it may not help in the long run. The reduced monthly payments generally extend the repayment period, which makes the borrower pay more money in interest, according to Federal Student Aid's Web site.

“It comes out to what works best for you at this point and time,” said James Brooks, director of MU's Student Financial Aid Office.

Lindsay Parsons, 24, a 2007 MU graduate, said she used an income-based repayment calculator to find out her monthly payment amount, which came to $47.

"If I'm paying about $50 a month, I'll get nowhere with that," Parsons said.

"If I could make payments like that for maybe five years after graduation so that I could get set with my finances, that would be great, but for the long-term, I don't think it's a positive program," Parsons said.

Parsons said she wants to take care of her estimated $30,000 loan debt within 10 years after graduation, if not sooner.

"I don't want to be 50 and still be paying off student loans," she said.

Wendy Fischer, assistant director of loan possessing at MU, said those who are interested in the new repayment plan need to apply. Otherwise, they will automatically be set up under the standard repayment plan.

When students take out loans, they tend to focus on immediate circumstances, Fischer said. Many don't think about the future and estimating their financial capability to pay off debt.

According to data from the 2007-08 academic year, the most recent available, MU students borrowed $95.6 million in subsidized and unsubsidized loans from the federal government. Compared to the previous year, this figure increased by 9.5 percent. The average amount of debt per student was $20,800, Brooks said.

“We have more students with need who are borrowing loans,” he said.  “That’s not just specific to MU, that’s a national trend."

For the same year, student loan debt statewide amounted to $181.6 million, a  1.3 percent increase from the previous year. The average amount of student loan debt was about $19,000, according to statistics provided by Brian Crouse, a research associate with the Missouri Department of Higher Education.

Most MU students borrow money for four years, whereas the state average takes into consideration all two-year institutions. This might skew the average, Brooks said.

Alex Foss, 24, a 2009 MU graduate with a master's degree in business administration, owes about $52,000 in loans for his undergraduate and graduate degrees. For him, it's not just a "blank number in the air," he said.

He said he is not afraid of it, however.

"I don't lose an hour of sleep when I come to think about that," Foss said.

He said an income-based repayment plan seems reasonable, especially in the current economy. Taking into consideration Foss' debt, under the standard 10-year repayment plan, he may pay about $600 a month. However, under the income-based repayment plan, with Foss' current income of $55,000 a year, he may pay $484 a month.

"It's worth the time of day to investigate the income-based repayment plan," Foss said. "On face value, it looks good, but I have to calculate my budget first."

For more information about the income-based repayment plan, go to

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vicki smith July 7, 2009 | 6:58 a.m.

The monthly payment formula of the income-based repayment plan may be so low that the payments do not even cover the monthly interest on your loans. For the first three years, the government pays the difference. After that, it is added to the principal. So if you're on it for three years, it is basically in a holding pattern- after that, there could be negative effects.

(Report Comment)
Ben Morgan June 3, 2011 | 12:57 a.m.

After the college graduation parties wind down and the beaming faces of your parents fade into memory, the grim reality starts settling in: You owe thousands of dollars in student loans, and you hold an entry-level, low-paying job. The prospect of having to repay big-time student loans on a small-time income is daunting. If you've completed graduate or professional studies, your loan balance might even exceed $100,000. The income-based repayment plan, which is available to both undergraduate and post-graduate students, can also help those who took out federal student loans before the income-based repayment plan was created.

(Report Comment)
Ellis Smith June 3, 2011 | 6:27 a.m.

For years both Missouri University of Science & Technology and University of Missouri-Columbia have offered engineering students the option of work-study bachelor's degree programs. Students attend classes on campus for a year, then work full time at an assigned business for a year and then come back to classes again for a year, etc. They are paid for working, and they are given real work to do.

So it takes seven years to get a degree. So what! Time spent in university classes is rather minor compared to years spent in employment after graduation. With the work-study program there can be less or no need to take on student loans. Most students who have taken this option receive a job offer upon graduation from the firm they have worked for, pretty much guaranteeing a job on graduation. Or if they elect to find a job elsewhere they have an actual job resume to present to a prospective employer.

(Report Comment)
John Schultz June 3, 2011 | 11:23 a.m.

I wonder if Alex Foss will think those student loans are so reasonable when 10 to 13% of his pre-tax income is going to a loan and he is thinking about a family, a home, or other expenses that people incur when they get out of college and live a few years in the "real world."

(Report Comment)

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