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Income Contingent Student Loans

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The term “income contingent” means something important to today’s college and university students and recent graduates, especially those concerned about borrowing student loans. If you’re worried about how you will repay your student loans after graduation, you should read this article.

It is common for graduates in the post-recession economy to experience difficulty in finding a job. You might feel like you have to accept a salary considerably below your earning potential and education level, especially a job in the public or nonprofit sector. Several years ago, the U.S. federal government created a new generation of “income contingent” student loans which can help college and university graduates like you to manage student loan repayment.

An income contingent loan is a student loan that you can repay based on the amount of money you make in your post-graduate employment. This type of student loan gives a commercial lender some measure of protection against your default on the loan, but it also requires you to repay what you’ve borrowed within your ability to pay.

Federal guidelines administered by the U.S. Department of Education (DOE) have established that the size of a student’s monthly repayment amount can be adjusted according to income level. If a student does not earn the right level of income after college, he or she obtains a form of economic relief. It’s important to note that parent loans your parents might have borrowed under the PLUS program are not eligible for these repayment provisions.

As a student or former student, you can use the DOE’s government’s income contingent repayment calculator to estimate your monthly payments. Note that you will need important loan information including the amount of the loan and the interest rate. You also need to know your adjusted gross income, whether you’re married or head of household, and your family size; these last three are based on how you file federal income taxes with the Internal Revenue Service.

You can verify the amount of interest you must repay on student loans by reviewing your student loan paperwork. However, you can also calculate student loan interest based on national standardized amounts for certain years. According to the U.S. Department of Education, subsidized undergraduate student loans first disbursed between 7/1/08 and 6/30/09 will have an interest rate of 6.00 percent. Loans first disbursed between 7/1/09 and 6/30/10 will have 5.60 percent interest, and loans first disbursed between 7/1/10 and 6/30/11 will have 4.50 percent interest.

Find out what you need to know about income contingent student loan repayment before you accept a low salary after graduation. You want to be able to meet your student loan obligations to preserve your personal credit rating.


Government Managing Risk; Bruce J. Chapman; 2006

Extreme College Planning; Thomas Leahy; 2002

U.S. Department of Education Income Contingent Repayment Calculator