Feds offer relief to some student loan borrowers

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(MoneyWatch) For college students graduating with debt, the federal student loan repayment program is about to become more helpful just in time for the holidays.

The U.S. Department of Education has announced that an improved version of its income-based repayment plan, which is aimed at helping borrowers who have high student debt relative to their income, will take effect Dec. 21. 

Currently the plan caps the monthly loan payments of qualified federal student loan borrowers at 15 percent of their discretionary income, while any remaining balance is forgiven after 25 years. The improved program, titled "Pay as You Earn," will cap payments at 10 percent of a borrower's discretionary income and loan balances will be wiped out after 20 years.

This improved repayment program had been scheduled to take effect in 2014, but President Barack Obama exercised executive authority to move up the date for some borrowers.

To qualify for the enhanced deal now, borrowers must have taken out a federal student loan after Oct. 1, 2007, and also have taken out a loan on or after Oct. 1, 2011. It's estimated that 1.6 million borrowers are eligible for the program.

The loan repayment plan is an excellent safety net for students who need to borrow for college to obtain a bachelor's degree and who limit their borrowing to federal loans. By contrast, the income-based repayment plan does not cover private student loans or federal parent college loans.

You can determine whether you qualify for a federal repayment plans by using the IBR calculator, which calculate monthly payments based on your income, family size and state of residence.

Relatively few people are aware of this opportunity.  If you know someone who could benefit from this program, spread the word.

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