Pay Off Your Student Loan with Help from Uncle Sam

Today could be a day of liberation for millions of college graduates who are struggling with college loan payments. Thanks to the federal government's new Income Based Repayment Plan, which takes effect today, many debtors can cut their payments on their federal student loans to less than 15 percent of their incomes.

The U.S. Department of Education's official site about IBR is a great place to start, but anyone thinking of applying for the program should consider a few details:

Are you married or engaged? Marriage just got more expensive, because the government initially plans to base the new payments on "family income," no matter how much one spouse owes. But Edie Irons, spokeswoman for the Project on Student Debt, says a move is afoot to reduce the marriage penalty sometime next year. In the meantime, she suggests debtors who already are hitched (or plan to wed) see if filing their taxes separately would give them enough debt relief to offset the extra hassle and possible tax expense.

Is there any possibility you will work in any type of public-service job (for any government agency, school, nonprofit, etc.)? If so, consolidate your federal loans directly with the federal government first. Those are the only loans that qualify for public-service forgiveness.

Have you been laid off or had a pay cut? Keep good records. The government plans to base the new loan payments on the income debtors report on their previous year's tax filings. Those who want their payments to be based on current, lower incomes will have to provide documentation. Those who get a new job or a raise should plan on higher payments the following year, as debtors have to reapply for IBR, and document their recent income, every year.

Have you been working in a public-service job and been making your payments for the last year or two? Good news: You might qualify for retroactive credit towards loan forgiveness. Anyone who has worked in a public-service job and been making regular, on-time payments since Oct. 1, 2007, can have those payments counted toward the 120 (or 10 years' worth of) on-time payments that are required for the remainder of the loan to be forgiven under the government's public-service cancellation offer.

Confused by similar-sounding jargon? Watch out. There are several sound-alike programs, including "Income Contingent Repayment" and "Income Sensitive Repayment." Remember: the federal government's Income BASED Repayment is generally considered to be the best deal. 

Hoping for more relief? Alas, the new IBR applies only to federal student loans. So, parents who borrowed to pay for their kids' tuition won't get any help from the new program. And students who took private, signature, or alternative loans from companies like Sallie Mae won't be helped by the new program. The federal government and private lenders generally do offer other payment plans to help strapped borrowers, however. So, if you're having trouble making your payments, it pays to call them and ask for help.

See more on Paying for College.