The One-Step Way to Cut Your Student Loan Payments
Student loan payments can put a lot of pressure on a borrower's budget, especially when they're right out of college and money is scarce. Luckily, if you have federal student loans, you can sign up for a program that can significantly reduce your monthly payments -- and may even lead to loan forgiveness.
The Department of Education offers several income-based repayment plans for federal student loan borrowers. Instead of basing your student loan payment on the amount you borrowed and the term of the loan, these plans base your payment on how much "discretionary income" you have. You can make very small payments when your income is low, and then increase the payments once you're making more money. And if you get stuck with low-wage jobs for a long time, you'll at least get one nice benefit from it: After a certain period of time on an income-based repayment plan, any remaining loan balance is automatically forgiven (you'll have to pay income taxes on the forgiven loan balance, though).
"Discretionary income," according to the rules of the income-based repayment plans, is the difference between your income and 150% of the federal poverty guideline for your state and the size of your family. So if you have a big family and/or a really low income, your student loan payments could be as low as $0 under these plans. You're required to recertify your income and family size annually in order to stay on an income-based plan.
Source: Fool.com
