Drowning in Student Loan Debt? IBR Law May Help

There are few things more dispiriting in life than leaving campus with a pile of student loan debt and no decent job offers.

After spending a load of money to prove you're capable of earning a good living in the real world, who wants to head back home, shack up with the parents, and hit up the old boss at Home Depot for a part-time gig? Unfortunately, in the midst of one of the worst job markets since the early 1980s, this is the reality many graduates are facing.

According to a survey performed by the National Association of Colleges and Employers (NACE) earlier this year, less than 20% of 2009 graduates who applied for a job actually had one lined up by the time they walked across the graduation stage. To put that number in perspective, it was more than 50% just two years ago.

Income-based repayment can decrease your student loans

Job or no job after graduation, you can rest assured the bills will soon start to pour in from every angle. However, if you find yourself unemployed or stuck with a low-paying job, at least paying off your student loans could become a little less painful.

A provision of the 2007 College Cost Reduction and Access Act, known as IBR (Income-Based Repayment), has been receiving a lot of media attention since it took effect on July 1st of this year. It may not be the perfect solution for all your student loans, but it could serve as a much needed lifeline to get you through rough times.

Here's a brief summary of how it works:

If you're struggling to keep up with your federal student loan payments, you can apply for IBR, which will cap your monthly payments at 15% of any income that exceeds $16,000 per year. If you make less than $16,000 per year, you may not be required to make payments at all.

Any unpaid debt that remains after 25 years is forgiven. And if you work full-time for the government or a non-profit, that number changes to 10 years. Check out IBRinfo.org to read more about the program, determine your eligibility, and estimate your monthly payments.

I think the most important thing to understand about this new program is that the total cost of your student loans will actually increase as your payments are minimized and interest charges accrue over a longer period of time. So, if you can find any possible way to keep up with your current monthly payment, this may not be the best option for you.

However, if defaulting on your student loans is the only option you can see in your near future, IBR can help lower monthly payments and provide a lifeline to ride out the economic storm in anticipation of better jobs or better salaries on the horizon.

Have you had a good or bad experience with the Federal Income Based Repayment program? If so, I'd love to hear your story in the comment section below.

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This is a guest post by Joshua Heckathorn, who runs Creditnet.com and holds an MBA and B.S. in Finance. Creditnet is a free resource for anyone who wants to learn more about credit or debt and compare hundreds of credit cards online. When Josh isn't glued to the screen of his Mac, you're bound to find him at the nearest rock-climbing wall or sushi joint around Seattle.