College students look forward to graduation without a second
thought of what follows, student loan repayment. It’s a harsh reality that
hits at the transitional period of being a student to a real world worker.

According to the Consumer Financial Protection Bureau, the amount of federal student loans crosses the $1 trillion mark. Over 40 million students across the country are in debt adding up to this number.

The biggest concern is how will students afford the payments and what kind of options are available out there so that loan default does not happen. The U.S. Department of Education and TurboTax are teaming up to create awareness of the income-based repayment plan for federal loans to manage student debt.

Graduates can apply to have their loan payment adjusted based on financial hardship. The Federal Student Aid Office of the U.S. Department of Education states that payments may be lowered to the maximum of 15 percent of their discretionary income for up to 25 years depending on their income level, family size and other factors based on state of residency.

The income-based plan must be applied for annually and payments will vary as income changes year to year. The repayment plan helps to manage debt at the time of need. Typically, the total amount paid over time is significantly more compared to the standard 10 year repayment plans due to accrued interest.

The average in-state Fullerton College students spend over $22,000 in 2 years of attendance, as estimated by the school’s net price calculator. It factors in the total of tuition, fees, books, room and board and other expenses after grants and scholarships have been applied.

Choosing to pay this federal loan under the income-based repayment plan, the former student could potentially pay nearly double the interest by the sixteenth year of repayment when comparing it to the amount of interest paid on a standard 10 year plan.

That’s the difference of paying $16,305 versus $8,246 in interest alone.

The estimation is based on an income level of $27,000 per year with a single member sized family using the Federal Student Aid repayment calculator at www.studentaid.gov/repayment-estimator.

Repayment plans should be chosen carefully to meet each individual’s needs and what benefits their financial future.

Clearly, the income-based repayment plan is not a “one size fits all.” It helps relieve the financial strain when the loan payment is too high and action needs to be taken to prevent default. In most cases, it should not be used as a long-term solution.

Whether or not the student graduates, the loans must be repaid.

The Federal Student Aid Office suggests students only accept what funds they need and not the entire federal loan offer.

After all, students pay for a higher education to increase their salaries, not to be in debt for the years following graduation.