While many federal programs are teetering on the fiscal cliff, a lifeline has been thrown to a plan that helps student loan borrowers.
A few days before the presidential election, the U.S. Department of Education approved final regulations that revamped a generous but not widely known student loan repayment program known as Pay as You Earn.
The department made two key changes to the repayment program, which was introduced by the Obama administration about a year ago to help borrowers who may be experiencing financial hardship.
Under the plan, eligible college graduates can peg their federal loan payments to 10 percent of their annual discretionary income. And assuming payments are made like clockwork, any remaining balance will be wiped off the books after 20 years.
The original version of the program required borrowers to set repayment at 15 percent of their discretionary income, with balances forgiven after 25 years.
The new plan "is a great safety net for borrowers," said Mark Kantrowitz, publisher of FinAid.org., a financial aid website.
Monthly payments are based on your income and family size, with annual adjustments.
Importantly, borrowers can continue to make payments in the Pay as You Earn plan even if they land a higher-paying job and no longer are suffering financially.
It's estimated that the new version of Pay as You Earn will help more than 1.5 million federal student loan borrowers.
Unfortunately, not every borrower is eligible. The new plan is limited to recent borrowers, defined as those with at least one federal loan taken out after Oct. 1, 2011, and no loans before Oct. 1, 2007.
Other important details:
To find out whether you're eligible for Pay as You Earn, go to the Education Department's website, http://studentloans.gov/. Also, check out FinAid's income-based repayment calculator at http://www.finaid.org/calculators/.