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Graduate to lower student loan costs

Got high student loan debt? Standby for some good news. There's a government plan that could lower your payments.

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By Gerri Willis, CNN personal finance editor

For more information on managing your largest investment, check out Gerri Willis' 'Home Rich,' now in bookstores.

NEW YORK ( -- Today the government will begin offering a repayment plan that lets graduates reduce their monthly student loan payments based on their income. It's called the income based repayment plan and it's available to borrowers who took out federal loans or used a federal consolidation loan to combine their debt.

1. Advantages and disadvantages

Some of the benefits of the program include the ability to get your monthly payments lowered.

If you make timely payments for 25 years, the balance of your loan is forgiven or if you go into public service, your debt is forgiven after 10 years.

But there are drawbacks. First, you'll pay more in interest over the life of the loan since you're stretching your payments out.

And you must submit documentation of your income and family size each year to set your payment amount. If you do not provide the documentation, your payment reverts to the standard 10-year repayment amount.

2. Do you qualify?

You will generally qualify if your federal student loan debt is high compared to your income and family size.

While your lender will perform the calculations to determine your eligibility, you can use the Education Departments calculator at to estimate if you would benefit from this program.

Contact your lender or the lenders who hold your student loans. Keep in mind you may need to submit a copy of last year's taxes.

3. Help for the unemployed

If you don't have any income at all either because you can't find a job, or you lost your job, you can still take part in this program. And if you qualify, your monthly payments could turn out to be zero.

Keep in mind there are other options out there too. The government has always allowed for people who can't make their student loan payments to apply for deferments and forbearances.

In both cases you can stop making payments for a little while. The debt doesn't go away, but interest does continue to accrue even if you don't make payments.

And, just to mention another bit of good news, interest rates on subsidized undergrad Stafford loans are now at 5.6% and older variable rate Stafford loans consolidated after today will carry an interest rate of 2% -- a historic low.

-- CNN's Jen Haley contributed to this article.

Got a financial dilemma? Go to to submit questions, read the Help Desk articles and check out new Help Desk videos. And tune in to CNN's Newsroom Tuesdays and Fridays, when Gerri Willis and other experts answer your questions. To top of page

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