For former students who have problems servicing their monetary obligations to Uncle Sam, this flexible repayment option may help them find some leg-room in their tight cash-flow position.
Last Thursday, Sylvia Hall of the Nightly Business Report told us that under this not widely-used Income-based Repayment plan, student loan payment is pegged at the borrowers’ adjusted earnings. Under this scheme, the amount to pay back each month is limited to15% of the borrowers’ income. If after 25 years or 300 payments, the loans remain unpaid, the government will forgive the entire remaining balance.
Unfortunately, the government’s good intention to help many borrowers of the student loan does come with a couple of catches.
Firstly, the loan the government forgives will become the borrowers’ taxable income.
Secondly, under this plan, the borrowers will be paying more interest on the loan due to higher unpaid balance.
Today, there are only 85,000 out of 1.6 million borrowers of student loans have subscribed to this repayment option. - Ayee
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