Federal Financial Aid Relief for Allied Health Students

For almost half of all college students, post-secondary education comes with debt, sometimes a sizeable debt, from their college student loans. The US Government gives more than $100 billion in federal financial aid to almost 14 million college students every year, and graduates must pay that money back. In fact, the average debt for college graduates is $23,000, but many owe quite a bit more.

The federal government does not forgive college loans, even if you file for bankruptcy. But now, given our challenging economic environment, the federal government wants to help students pay back their federal student loans.

As of July 1, 2009, a new and exciting student loan repayment program called "income-based repayment" (IBR) will help some health care students pay back their college loans.

Federal Financial Aid and Income-Based Repayment

Income-based repayment is a new student loan repayment plan for the main types of federal loans. Under this plan, your monthly student loan payment is reduced to an affordable amount, based on your income and family size.

In addition—and this may be the most exciting part of IBR—if you haven't paid off your federal college loans within 25 years, any remaining debt will be cancelled. If you work in public service (as a teacher, in government, or for a nonprofit organization), your federal financial aid loans will be forgiven after only ten years.

Who Is Eligible For This Student Loan Repayment Plan?

You qualify for the income-based repayment plan if your federal student loan debt is high relative to your income and family size.

The amount you would pay under the IBR plan is calculated by your lender and takes into account not only your income and family size but also the cost of living in your geographical region (Alaska and Hawaii follow a different calculation). If that amount is lower than the monthly payment under a standard 10-year student loan repayment plan, then you are eligible to repay your loans under IBR.

Eligibility for income-based repayment also depends on the type of student loan you have.

IBR covers only federal student loans. This includes Stafford, Grad PLUS or Consolidation loans under the Family Federal Education Loan or William D. Ford Direct Loan programs. Loans can be new or old, and for any type of education (job training, undergraduate or graduate degrees). IBR even works for loans you take out for online study.

On the other hand, PLUS loans to parents and private loans are not eligible.

Contact your lender to find out if you qualify for income-based repayment.

Pros of the Income-Based Repayment Plan

Paying back your federal financial aid loan through income-based repayment has many advantages:

• Your monthly payments are based on your family size and what you earn, not what you owe, and the total monthly payment is less than 10 percent of your adjusted gross income.
• The federal government covers your loan interest for the first three years of repayment if you can't. Interest is "recapitalized" to the principal after that.
• After 25 years of payments, any remaining student loan debt is forgiven.
• If you work in public service for 10 years under a Direct Loan program, your debt balance will be canceled.

Cons of the Income-Based Repayment Plan

But there are a few disadvantages:

• A longer repayment period can mean you pay more interest over time.
• You must document your family size and income to your lender every year.
• Debt balances forgiven after 25 years of repayment will be taxed as income. (This is not true of Public Service Loan Forgiveness.)
• Married couples who each have federal financial aid debt may owe twice the payment of a single debtor if a couple files their taxes jointly.

Tips to Maximize Your Income-Based Repayment Plan

The new income-based student loan repayment program will help graduates repay their federal student loans. To get the most of IBR:

• Finance your education with federal loans.
• Avoid private loans, as they are not eligible for income-based repayment.
• Apply for Direct Loans: they are required if you plan to pursue public-service loan forgiveness.
• Learn the difference between your income-based repayment amount and the standard 10-year plan amount; if the difference is small, you will pay less over time with a 10-year loan.

Other Health Care Education Repayment Programs

Many state departments of health and human services offer health professionals loan repayment programs in health care areas in need of qualified workers. Contact your state department of health to learn more. Also consider:

• Joining a military reserve: Depending on your length of service and category of health care expertise, the military may pay college student loan debt up to $20,000 a year and $50,000 maximum.
• Work for the Indian Health Service: The IHS Loan Repayment Program covers up to $24,000 a year in eligible loan payments. If you agree to work for two years at an IHS site that offers the Supplemental Loan Repayment Program, you can receive a loan repayment award up to $48,000.
• Become a dental hygienist and work in a medically underserved area: The National Health Service Corps of the U.S. Department of Health and Human Services offers up to $50,000 in repayment funding for dental hygienists willing to work two years at an approved site within a Health Professional Shortage Area.

For more information, consult the US Department of Education's IBR website.