A new repayment program for federal student loans caps monthly...

A new repayment program for federal student loans caps monthly payments based on salary. Credit: iStock

For millions saddled with federal student loan debt, there’s a new lifeline.

Under the Revised Pay As You Earn (REPAYE) plan, eligible borrowers can cap their monthly payments at 10 percent of discretionary income, no matter when they borrowed or how much they owe. (Loans made after Oct. 1, 2011, were already eligible for similar treatment under the PAYE repayment plan.)

With REPAYE, if you make $30,000 a year, your payments would be capped at about $103 a month, according to ClearPoint Credit Counseling Solutions.

And there’s more good news. After 20 years of making payments, or 25 years if you’re a graduate student, anything remaining is no longer your burden.

Uncle Sam giveth, but also holdeth back.

“If you’re married, your spouse’s income will be used to calculate your monthly payment, even if you file separately,” points out Brianna McGurran, a student loan expert with NerdWallet.com.

Also, the PAYE and REPAYE programs are two of the hardest repayment options to obtain, cautions Terrence Banks, a student loan counselor with ClearPoint in Richmond, Virginia. “Don’t be surprised if you don’t qualify.”

Know too, there is a downside to loan forgiveness. It can trigger a one-time spike in taxes due, because the amount forgiven may be taxed as ordinary income.

Go to studentloans.gov. Use the Federal Student Aid Repayment Estimator to help determine how much you’re likely to pay under various plans and how much of your balance could be forgiven.

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