Income Based Repayment and Public Service Loan Forgiveness are Here!

Anne.Oeldorf's Flickr Photostream

Anne.Oeldorf's Flickr Photostream

The College Cost Reduction and Access Act of 2007 officially goes into effect today, July 1st, and income-based repayment (IBR) applications are now available from many major lenders, including the U.S. Department of Education.

According to IBRinfo.org, you should contact your lender directly to apply for IBR.

Also, take a look at the resources mentioned in this post as well as IBRInfo.org’s FAQ.

According to IBRInfo.org, if you have exhausted other avenues and still face “serious problems” applying for IBR, Continue reading

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Low-Income, High-Debt Program for Student Borrowers Starts in July

When I first heard about the Public Service Loan Forgiveness (PSLF) program that cancels student loandebt after 10 years for nonprofit workers, I wasn’t that excited. My thinking was that many student loans are on a 10 or 15 year repayment schedule and the savings wouldn’t be that substantial.

Income Based Repayment Calculator

Income Based Repayment Calculator

I changed my tune big time when I learned about a second program called Income-Based Repayment (IBR) that works in tandem with public service loan forgiveness. Designed to assist low income/high debt student borrowers, IBR lets people making AmeriCorps/VISTA/grassroots nonprofit-level wages make student loan payments as small as 0-$5 per month (based on income) and those payments count toward the 10 years needed for borrowers to get their larger debt forgiven.

The reason I write this now is that the Income Based Repayment program begins next month. If you are interested, first learn more about it, then search for it on your lender’s website and apply for the program online.

Finaid. org offers a really great calculator that shows how much you might save (or not) using these programs versus a standard loan repayment program. Even if you’re income is higher than average for the nonprofit field, the program could offer substantial savings.

I also prepared a two-page draft document on the information most relevant to members serving in AmeriCorps or VISTA. Like I said, this is a draft document and I will be revising and simplifying it as my understanding of these programs evolves.

You can also take a look at this post about the College Cost Reduction and Access Act that offers some basic facts and resources.

College Cost Reduction Act – Basic Facts and New Resources to Help You

Campus building

Update, July 1, 2009! Check out this post about applying for Income-based repayment from your lender!

This July 1st, the College Cost Reduction and Access Act (CCRAA) of 2007 will take effect and includes provisions to make undergraduate and graduate education more affordable for aspiring social-impact professionals.

The CCRAA is a complicated piece of legislation that, if you take advantage of it, can help you retire college and grad school debt early.

The main programs that the CCRAA has created include:

Income-Based Repayment (IBR) — Caps monthly direct and guaranteed (FFEL) student loan payments based on the borrower’s income and family size. According to IBRinfo, “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 Continue reading

Those pesky student loans

Amy is off to New York to see Obama, McCain, and maybe President Clinton at the Service Nation Summit, while I’m stuck in Portland contemplating the nuances of financial aid. At the least the weather is as close to perfect as can be.

I learned more about the Public Service Loan Forgiveness program. That’s the new law that allows people working at nonprofits to have their student loans forgiven after 10 years of steady payments, starting from October 2007. (One of the catches is that you need to have Direct Loans, but if you don’t, you can consolidate.)

For me the downside of the program is that if you don’t have huge loans, at the end of ten years of steady payments there won’t be much of a balance to be forgiven. Still, getting any student loan balance off the books is a wonderful thing and should be taken advantage of.

But then I learned about another program called Income-Based Repayment, with huge implications for AmeriCorps and VISTA members, as well as others earning low pay while working in the nonprofit sector.

It comes online in July 2009.

In a nutshell, the Income-Based Repayment program sets your loan repayment amount at a rate of 15 percent of your discretionary income. Without getting too much into the math, if you are below the poverty line, your payments could be $0 per month. Sure interest will accrue, but the idea is if you serve in AmeriCorps or VISTA for a year or two and hold a low-paying nonprofit job for the next nine or ten years, you could get your entire loan debt erased without making a single payment in that time. (You should check the list of qualifying loans. If you don’t have them, consider consolidating.)

The trick with either one of these programs is to start planning now if you think you might be taking advantage of these programs.

I will write more later about the pros and cons of the Income-Based Repayment program vs. the forbearance CNCS offers to AmeriCorps and VISTA members.

Update 11/07, from Put Barber, Senior Researcher at Idealist.org:

The Department of Education has published final regulations for the College Cost Reduction and Access Act of 2007 (CCRAA). This Act provides for loan forgiveness for full time employees of “public service organizations.” Nonprofit full-time employees (at least 30 hours a week) who are making monthly college loan repayments can count each month of nonprofit employment towards the 120 months of payments needed to qualify for forgiveness of the remaining loan balance, beginning with payments after October 1, 2007. Current nonprofit employees with outstanding student loans of more than nine years future duration can look forward to an end to the loan payments in after about nine more years of work for nonprofits.


The National Council of Nonprofit Organizations (NCNA), along with other national groups, worked throughout the rule-drafting process to extend this provision to employees of all 501(c)(3) organizations. For more information, see a Q & A on the NCNA website.