College graduates, who have an average of $22,000 in student-loan debt and face a bleak job market, are learning that a degree doesn't always pay for itself. If you're a recent graduate who's struggling to repay your loans, help is on the way. Starting July 1, the new Income-Based Repayment program can reduce the loan payments of grads with high debt and low incomes to a little as zero. If you owe more than you earn in a year, you will probably qualify. Income qualifications: The program considers any income earned above 150% of the federal poverty level discretionary. For single people in the continental U.S., that amount is $16,245. It's higher for people with dependents and residents of Alaska and Hawaii. Of that amount, no more than 15% should go to student loans. If you make less than 150 % of the poverty level, meaning you have no discretionary income, your payment would be zero. For people earning more, payments would be calculated based on a sliding scale. For example, the traditional 10-year repayment plan might call for $350 a month on $30,000 debt. Under the Income-Based Repayment program, a person who makes $30,000 would pay only $170. The program offers a calculator on its Web site. If your payments don't cover your loan interest, the unpaid interest will accrue but it won't compound as it would in traditional deferral programs. In other words, interest will not be charged on interest. Any balances will be forgiven after 25 years. If you enter certain public service fields, the program forgives balances after 10 years.
What to do: Applications will be available July 1. While you can check your eligibility, the Internal Revenue Service will verify your income for the previous year. If you have multiple fixed-rate loans that charge 6.8 %, you'll probably want to consolidate them. However, if you have variable-rate loans from before 2006, you might qualify for a lower rate in July under a consolidation rate set by Treasury auctions. You can find out more through the Federal Direct Consolidation Loan's Web site. If you have older, consolidated loans but can't afford the payments because you lost your job, you might qualify based on your current income. For older loans, the new payments would be based on how much you owed when you started repaying the loan. You might qualify for the Income-Based Repayment program even if you've defaulted on your student loans. If you've filed for bankruptcy protection, this might be the best way to repay your loans. Bankruptcy doesn't erase student loans. The program is still a work in progress, but it aims to make loan payments less of a burden and encourage public service. Eventually, your education will help you land a better job and repaying will become easier. And that's the Savage Truth.