Drowning in student loan debt? Help's here

Thousands of college graduates across the country will be able to get some relief from their student-loan bills under a new federal program that goes into effect July 1.

The Income Based Repayment program allows graduates to pay no more than 15 percent of their income toward monthly loan repayments. Those with moderate or low incomes will be required to pay much less than 15 percent, and in some cases, nothing at all — at least initially. The program will be particularly helpful to new graduates who have big loans and are entering a tough job market.

The program encompasses federal loans that account for about two-thirds of all student debt. Private loans taken out by students and federal loans taken out by parents do not qualify. If people are already in default on their loans, they won't qualify for the program, either.

Kay Lewis, director of student financial aid at the University of Washington, said she plans to send a mass e-mail to the 4,100 students who graduated from the UW this year to let them know about the program. She said about half of those students left with loans.

"We are hopeful this will give relief to students whose income is in the lower range, especially when they are starting out," Lewis said. "This may be a good way for them to handle debt, at least for a while. They may want to look at a standard plan once they get their income up to a higher level."

Nationally, about 60 percent of students who earn a bachelor's degree borrow at least some money, according to the College Board. They graduate with an average $23,000 in loans. On a 10-year loan, that equates to monthly payments of about $260. For graduate students, the loans are much bigger — at the UW, for instance, medical students who borrow end up owing an average of $106,000.

Under the program, a graduate earning $30,000 a year would be required to pay a maximum of $172 a month toward student loans. For someone earning $40,000 a year, the payment would rise to $297 a month. For someone earning $50,000, it would be $422 a month.

One significant downside is that some people may end up paying more over time. That's because by paying less each month, they will extend the life of their loan, adding to the total interest payments. And while unpaid interest is written off for the first three years, after that, in many cases, it's added to the loan balance.

The good news is that, under the new program, anyone who makes the required minimum payments for 25 years will have any remaining loan balance written off. That can be reduced to 10 years for those working in public-service jobs — including state or federal employees, nonprofit workers and public-health workers.

The program is open to people who have existing loans as well as new graduates. To apply, people need to contact the lender who holds their student loan.

"Especially in this economy, we need to give students options to repay their loans that don't break the bank," said Sen. Patty Murray, D-Wash., who supported the provision as part of the 2007 College Cost Reduction and Access Act. "By allowing income-based loan repayments, we will give students a pathway to success before they are buried in debt."

Nick Perry: 206-515-5639