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Consumer

New student-loan refinancing program begins today

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NEW YORK (7/1/09)--There’s good news on the student loan front, but the new income-based repayment option isn’t the be-all-end-all for all college graduates (CNNMoney.com June 24). To qualify for the Income-Based Repayment Program (IBRP), you must have a Stafford, Graduate PLUS, or consolidation loan with either the Direct Loan or Federal Family Education Loan (FFEL) programs. Students who carry private student loans or loans taken out by parents to help fund their child’s education through the FFEL or Direct Loan parent PLUS Loan programs don’t qualify. Also, your total debt must exceed 1.5 times gross income. If you qualify, your required monthly payment is based on your income during any period when you have a partial financial hardship, and the amount may be adjusted annually (Credit.com March 20). If you meet other requirements, you may qualify for cancellation of any outstanding balance. There are pitfalls. If you have a high debt-to-income ratio, your balance will increase significantly throughout the life of the loan, and when the term ends, it’s likely the high amount forgiven will be taxable income. And if you already defaulted on loans and incurred fees and interest that inflate the loan to more than the original amount borrowed, the new repayment program won’t help; the tax penalty alone may exceed the amount originally borrowed. To determine whether you’re eligible for the new repayment option, visit finaid.org/calculators/ibr.phtml. To learn how the IBR program works, visit IBRinfo.org. For more information, read “Tough Times Series: Getting Student Loans During the Credit Crunch” in Home & Family Finance Resource Center.