IBR: An option for travelers with student debt
Student loans don’t have to be a barrier to taking your show on the road.
When I was planning to move abroad after graduating from a small liberal arts college in 2008, one of my biggest concerns was how I was going to pay off my loans. Even though my financial aid package was quite generous, I graduated with $26,000 in student debt: a combination of Stafford and Perkins Federal loans.
My first year living in Chile, I qualified for an economic hardship deferral because I was unemployed for two months. Then, I started paying in full: $320 per month. I did this for a year and a half, using 23% of my monthly income to pay back the loans. This wasn’t tragic — the cost of living in Chile is lower than that in the US — but sometimes I had to dip into my savings account to cover the payment.
Last August, I found out I needed to have major surgery. By this time, between travel throughout Chile and my loan payments, my savings account was dangerously low. Although my private health insurance covered 90% of the medical costs, I was unsure how much I would have to pay out of pocket. I was afraid that I wouldn’t be able to make my loan payments because of these extra medical costs.
After doing some research on my loan servicer’s website, I found out that I didn’t qualify for an economic hardship deferral. However, I found an even better, more sustainable solution: Income-Based Repayment (IBR). This program calculates a monthly payment based on how much money the loanholder makes. If your earnings are less than 150% of the US poverty level, your monthly payment is $0.
You never have to pay more than 15% of your discretionary income.
After applying through my loan servicer, I just sent in my most recent US tax return and I was all set to pay $0 per month for the next year. Yes, I am accruing interest during this time, but, under the program, if I haven’t paid off the balance within 25 years, my remaining debt is forgiven. IBR is recalculated once a year and the monthly payments are adjusted if necessary, but you never have to pay more than 15% of your discretionary income.
This program was started in 2009, and though I wish I had known about it earlier, IBR has made my last year living in Chile much more relaxed. If you’re considering moving abroad, but are, like the majority of recent graduates, concerned about student loans, IBR might be a practical solution.
For more info and to see if you qualify, visit IBRinfo.org. The website explains which federal loans are eligible, and has an online calculator to estimate your monthly payments.