As of July 1, 2009, federal student loan borrowers have an additional repayment option, the income-based repayment  plan.  For those that qualify for this new plan their payment amount will be adjusted based on their income and family size.  The payment will not be more than 15 percent of the amount by which their adjusted gross income exceeds 150 percent of the poverty line for their state of residence and family size.

The monthly payment amount may be lower than the monthly interest accrual on the loan.  If the monthly amount is not enough to pay the accrued interest on a subsidized Federal Stafford Loan (which awarded on the basis of financial need and the federal government pays interest of the loan until you begin repayment and during deferment periods) or the subsidized portion of a Federal Consolidation Loan, the Department of Education will pay the remaining interest for the first three consecutive years from the date the borrower first qualified for income-based repayment on that loan.  This three-year period does not include any period during which the loan is in Economic Hardship deferment.

Eligibility for this repayment plan is re-evaluated annually and more interest may accrue over the life of the loan because the principal balance is paid off at a slower rate.  The outstanding loan balance, if any, will be forgiven after 25 years and 300 qualifying payments.  The amount that is forgiven may be taxable.

To estimate what your payment would be under this program use Mapping Your Future’s income-based repayment plan calculator at mappingyourfuture.org/paying/ibrcalculator.cfm.