Federal Financial Aid Relief for Allied Health Students

As of July 1, 2009*, a the student loan repayment program called "income-based repayment" (IBR) went into effect to help some health care students pay back their college loans. Income-based repayment is a 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.

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 your 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, online study). However PLUS loans to parents and private loans are not eligible.

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.

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.

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.

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

Many state departments of health and human services offer health professionals loan repayment programs in health care areas in need of qualified workers. 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 to $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 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.

*The proposed "Pay as You Earn" plan, which will go into effect in 2014, will relieve students of remaining federal loan debt 20 years after a student's loans are due, as well as reduce monthly payments to no higher than 10 percent of their annual income. This is a significant change to the current IBR program, which allows borrowers to reduce their monthly payments to no higher than 15 percent of their annual income, and forgives debt that has not been paid 25 years after the loan is due.