IBR plan helps to reduce loan stress

Jake Fritz graduated with a marketing communications degree from UW-River Falls last spring. He left the University with optimism, new-found knowledge and nearly $20,000 in federal student loan debt.

“I tried to borrow as little as possible because I knew paying it back would be difficult,” Fritz said. All told, Fritz used federal student loans to cover approximately half of the living and educational expenses he accrued during his four years at UWRF.

Fritz is one of more than a million borrowers who could have their monthly student loan payments decreased next year because of an executive action made Oct. 25 by President Barack Obama.

Beginning in 2012, persons with federal student loans can apply to limit their monthly payments to 10 percent of their discretionary income. Borrowers who keep up with payments and submit yearly documentation could have their debt forgiven after 20 years.

The executive action will also allow current borrowers to consolidate their federal student loans starting in January. This will simplify the repayment process and lower interest rates, according to a White House press release.

Legislation passed in 2010 gives the same benefits to federal student loan borrowers starting in 2014. The executive action expedites the law, giving current borrowers the ability to apply for payment limits starting next year.

The executive action will help reduce monthly loan payments for 1.6 million borrowers, according to a White House press release.

The changes could potentially help nearly 5,000 students at UWRF in coming years.

During the 2010-2011 academic year, 63 percent of UWRF undergraduates and 37 percent of graduate students had student loans, UWRF Financial Aid Director Barbara Stinson said.

To receive benefits, borrowers will need to apply for an income-based repayment plan, or IBR, through the specific servicer of their student loans. Servicers will determine eligibility based on the borrower’s debt relative to income and family size, according to the federal student aid website. In order to continue with the IBR, borrowers are required to submit to their loan servicer updated income and family size information each year.

Obama commented on his executive action Oct. 26 at the University of Colorado in Denver.

“College isn’t just one of the best investments you can make in your future, it’s one of the best investments America can make in our future,” Obama said. “We want you in school, but we shouldn’t saddle you with debt when you’re starting off.”

Republican presidential candidates criticized Obama’s plan Oct. 27 at an education forum in New York. Minnesota Congresswoman Michelle Bachmann called Obama’s executive action an “abuse of power” for sidestepping Congress, the Associated Press reported.

For recent graduates like Fritz, whose first loan payment is due Nov. 17, the new benefits provide a safety net in uncertain economic times. Fritz said he builds websites for a start-up company in Hudson, but is looking for more stable work.

“I was worried about my monthly payment for a bit, having just had my hours cut at my full-time job. But I found more work and should be OK,” Fritz said. “It will definitely put me on a strict budget though.”

Fritz said he plans to learn more about the IBR program before applying for it himself, but is glad to know that it exists. He said it will probably be helpful for his sister, a junior at UW-Madison.

“If I had a ton of loans like my little sister is going to have, then this plan would be a huge relief,” Fritz said. “It’s still a relief to know I could apply for it.”