The Student-Loan Maze

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Income-Based Repayment is a federal student loan repayment plan that caps your required monthly payment at an amount intended to be affordable, based on your income and family size.

by Jessica Mizell
April 29, 2011

I distinctly remember when the first wave of payments for my student loans arrived. I cringed at the amount, immediately wishing I hadn't been so shortsighted as a student. Did I really need to borrow that much money?

Over the years, most of the time, I could swing the payments, but sometimes I would struggle to make them all on time. Almost five years later, sometimes I still do. I became a self-taught student-loan guru of sorts, taking on interest rates and re-negotiating payment options in various times of economic struggle. All it took was a little research and time, all things I wish I had done when I was in college. Here are three helpful pieces of information for taking out student loans and paying them back.


• Know your loan types. Federal loans and private loans are two totally different monsters. Federal loans are much easier to work out payment options, including deferred payments. You'll also get lower interest rates. Private loans are expensive. Interest rates can be jacked up to more than 20 percent, and repayment options are limited.

"I think the main thing to do, whenever a student wants to take out a loan, (is) to take full advantage of federal loans available, and make sure that your alternative loans are the loans of last resort," Patrick James, financial aid director at Millsaps College, says.

"When you do have to go into the program, the family and students have to (do their) research, because the workings of one loan company to another to the next could be night and day."


• Investigate the Income-Based Repayment program. Take a little trip to studentaid.ed.gov to learn all about it. I personally have done this program, and it really helps if you are struggling with your payments on your federal loans. Repayment is based on income, family size and state of residence, and it adjusts your payments each year based on those factors. It took me about 30 days for the entire application process, start to finish, and if you are behind in your payments, this brings your account current.

If you are a public employee while on the program, they forgive your loans after 120 consecutive on-time payments, while working for any public office. They even offer a forgiveness of your remaining balance after 25 years of payments for regular applicants.

One thing to be mindful of, though: "There is a chance that your interest rate will increase, especially if one year you pay less than another," James says.

If your payments for one year are lower than usual, there is a chance that your interest rates will rise. Also, you have to submit your income information each year, so the payment is subject to change, especially if your income increases.


• Behind in payments? Answer the phone! Don't be afraid of your lender. James encourages students to communicate with their lenders, not avoid them.

"A lot of times, I think the students are almost scared that a telephone call is from a lender. They kind of look at it like a credit-card call, and it's not," he says.

It is important to communicate with your lenders if you are having issues. They really are there to help you. They are people, too. Most of my talks with lenders brought out their own stories of student-loan struggles. It only got better after I stopped being intimidated and answered the phone.

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