If you recall, the Obama administration launched a student loan initiative several months ago. One prong of this initiative was to accelerate the date on which “improved” Income-Based Repayment (IBR) was slated to take effect.
IBR, if you don’t know, is a fantastic repayment program for federal student loans where borrowers pay approximately 15% of their income towards their federal student loans, and whatever remains of the loan balance after 25 years is forgiven. The “new and improved” IBR (which is now being called “ICR-A”) would reduce monthly payments to 10% of discretionary of income and would reduce the repayment period to 20 years. This is a fantastic improvement. Of course, not everyone is eligible.
Last week, the U.S. Department of Education released new regulations governing who is eligible for this “new” IBR (aka, ICR-A). Here’s what the new regs say:
- You must have had no outstanding federal student loans as of October 1, 2007, AND
- You must have received a new federal student loan on or after October 1, 2011
This effectively cuts out many borrowers, unfortunately, which makes sense since the program is designed primarily for “new” borrowers. Moreover, the way the regulations are written, consolidation loans will not be sufficient to qualify someone for the new IBR program if the borrower did not already meet the above criteria prior to the consolidation. That said, this is a new, great option for students who will be graduating in the coming years and meet the eligibility criteria.