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Monday, July 6, 2009

New Student Loan Repayment Program Offers Needed Relief
Story from the Abilene Reporter News

An Abilene man distraught over his next $610 monthly student loan payment made a call in recent weeks to Stephen Brower, assistant director of financial aid at Hardin-Simmons University.

By the end of the conversation, the man was “squealing like a third-grade school girl,” thanks to a new federal law that went into effect this week.

The law allows people to adjust student loan payments based on their income. With Brower’s help, the man filled his information into the loan calculator like the one at www.ibrinfo.org and was amazed his loan payment was cut to $311.

Brower said numerous people have inquired about this new repayment option.

“For him, it made the difference between having to default and being able to make his payments,” he said.

Anyone with federal student loans, even if they are administered through a private bank, can apply for the income-based repayment, or IBR, program by the U.S. Department of Education.

Payments are determined by a person’s income and loan size, meaning young college graduates at entry-level jobs can get a break.

Loan recipients submit their tax returns each year, so lenders can recalculate monthly payments based on borrowers’ income changes, according to the Chronicle of Higher Education.

“This is without any question the best program the feds have invented,” Brower said. The repayment program is also good for students who have received a federal student loan consolidation.

The implications are good for Abilene, full of graduates still making payments to the city’s three private colleges.

About 62 percent of HSU students pay for school with federal loans, as opposed to private student loans, and 72 percent of students at Abilene Christian University have federal debt.

Many of these graduates go into professions like teaching or non-profit work, which means with IBR, they could have their debt forgiven in 10 years.

Private sector workers can have their debt forgiven in 25 years, although most would pay their loans off by then.

ACU’s Career Center has put out the word about the income-based payments on its Facebook page, through Twitter updates and in workshops with graduating seniors.

For many students, student loans loom like a dark cloud on the horizon, Brower said.

“This new program is taking things, in my opinion, a quantum leap down the road,” he said. “In many instances it will cut the monthly payment in half.”

Interest will continue to accrue as borrowers take longer to pay back loans, but the program comes at a time when students are getting all-time low interest rates, which the Chronicle of Higher Education reports dropped again last week.

“A year ago, students were getting loans in the 6 to 9 percent range,” Brower attests. “Now, they’re getting 2 to 3 percent. It’s huge. While the economy is not great, and there are a lot of things that have gone south, there are some things about school finance that have gotten better for students.”

Jocelyn Nederhoff recently came from Albuquerque, N.M., to orientation for her freshman year at Abilene Christian University. She got a $5,500 Stafford loan for her first year at a good interest rate and may need more before she graduates.

Her father went to medical school, and while that means her parents are no strangers to student loans, they have different opinions on the new income-based payment plans.

“I’d rather get it over with as soon as possible,” said her father, Randy Nederhoff. “It’s better to just face the music and pay it.”

However, her mother, Collette Nederhoff, said, “I’m just glad she’ll have some options when she graduates, no matter what (salary) she ends up making at first.”

With income-based payments, lower interest rates and the Free Application for Federal Student Aid (FAFSA) easier than ever, will this make it too easy for students to rack up big debt?

Brower doesn’t think so.

“My experience is that students don’t go into more debt than they need,” he said, adding only about 2 percent of HSU graduates with federal loans default. “It is rare to see crazy spenders. The overwhelming sentiment among students is still that debt should be avoided at all cost.”