Student Loan Help: Have You Signed Up Yet?

Beginning next year, some low-income student loan borrowers may get the opportunity to shrink their monthly payments. As part of President Obama's "Pay As You Earn Program" announced earlier this week, the cap on monthly payments for federal student loan borrowers in the Income-Based Repayment program will drop from 15% to 10% of discretionary income.

The Department of Education estimates there are about 1.6 million Americans who qualify for the IBR program, which first launched in July 2009. But get this: Only 450,000 borrowers have taken advantage of the savings. That means more than one million strapped borrowers are leaving precious money on the table.

The Savings
If you qualify for the current IBR program, you can have your federal loan payments capped at 15% of whatever you earn above the poverty limit (more on that in a minute). When all's said and done, that typically comes to less than 10% of total income. So, let's say you're making $45,000 a year and have $60,000 in federal student loans. Under the standard repayment plan (6.8% interest and a 10-year term), your monthly bill comes to $690. If you're in the current IBR plan, you'd see your monthly payments drop to $358. And starting in 2012, they'll drop even further, to $239 -- a total savings of $451 a month, or more than $5,400 a year, according to calculations by the Department of Education.
Are You Eligible?
According to the IBR website, qualification for reduced payments is based on the size of your debt relative to your income. Specifically, you'd need to prove that it would require more than 15% of whatever you earn (which needs to be above 150% of poverty level) to pay off your loans in the standard 10 years. Check out this calculator to see if you're eligible. To see what's considered 150% of poverty level click here.

Also note: In order to qualify, you cannot be in default of your student loans.

How to Apply
If you have a direct loan from the federal government and think you're eligible based on the calculator, fill out this form and send it in to the address on the form. If you have a federally backed loan issued by Sallie Mae, you can find the IBR application on their website. For applications from other lenders, check out these links:

• Nelnet
• Citibank
• ACS
• Access Group
• Chase: Check their website or call customer service (1-800-835-4611)
• Wells Fargo: Call customer service to apply for IBR (1-800-658-3567).

Farnoosh Torabi is a personal finance journalist and commentator. She is the author of the new book Psych Yourself Rich, Get the Mindset and Discipline You Need to Build Your Financial Life. Follow her at www.farnoosh.tv and on Twitter/farnoosh
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