MarksJarvis: Student loan relief

Q: I will soon have to begin repaying my student loans for undergraduate and graduate degrees. Because the total is around $82,000, I fear that I will never be able to pay it off. The statements I have received in the mail recommend I pay $900 per month. I love my job at a young Web company, but I don't make much, and there is no chance I can pay $900 a month. Is there anything I can do?

D.M.

A: If you have federal loans, you can make use of new government rules that give people a break on student loan payments they cannot afford.

Under the relatively new "income-based repayment" plan, you get relief if the regular payments you would have to make over 10 years will exceed about 15 percent of your discretionary income. That's calculated based on a formula related to the U.S. poverty line. Besides income, the calculation involves the size of your family.

Simply put, most borrowers will be required to pay less than 10 percent of their adjusted gross income, said Finaid.org publisher Mark Kantrowitz.

In general, if you owe more on your loans than you earn annually, you are a likely candidate for some relief. For married couples, both spouses can be eligible, depending on income. And the income requirements apply to Stafford, PLUS and consolidated federal student loans.

To see how you stand, try this calculator.

Based on the calculator, if you are single and earning $70,000 a year, you would be expected to pay $670 a month. Of course, you don't escape your obligations indefinitely. If you are getting relief and not paying all your interest each month, it gets tacked onto the end of the loan.

So you might end up paying off your loan over a longer stretch than 10 years. But if after 25 years you still have not paid off all you owe, the government will forgive what's left. Also, if you happen to take a public service government job, you can get your loan forgiven.

For more information, visit here

Keep in mind that this program applies to federal student loans, not to private loans that you may get from a bank or other lender. This is one reason, before borrowing, to carefully consider who is giving you your loans and the rules that apply.

Also, it is wise to consider your likely future salary before taking on significant debt. Look up your profession at Salary.com. It's painful to finish college and wonder how you will pay your loans. And paying interest for more than 10 years is expensive, even if your monthly payments are manageable.

To see if you might qualify for relief after graduating, call your lender and ask about the options for alternative payment plans, Kantrowitz said. If your lender doesn't offer any options based on your income, he said, you can consolidate your loans.

Make sure you use the government's "direct loan program." This means you combine all your old student loans into a new federal loan, and once your loans are consolidated in the government program, you can then qualify for the income-based repayment plan. For information on consolidation, see here

Q: Is our money safe in the bank if the government can't pay its debt?

G.R.

A: You are one of many people who have asked me this, and it is sad that Americans find themselves worrying again — just like in 2008 — about the safety of their money.

Now, of course, there is a different twist on the safety question. In 2008, banks were in danger of collapsing, so the government injected money into them and also raised the FDIC insurance levels on CDs and accounts at banks from $100,000 to $250,000. So your money in a bank is protected by this insurance, regardless of what happens to the bank.

But you may wonder if you can count on the FDIC insurance if the U.S. government is in bad shape.

You can.

It is true that the U.S. has a debt problem that it must control over the long run, but it can pay its bills.

What lies ahead is not really a financial problem. It's a political problem. This is the richest country in the world. There is plenty of money. But politicians have to decide how they are willing to anger constituents: by cutting services or raising taxes.

These are hard choices, but they aren't about banks going bust.