New Monthly Payment Formula for Direct Loans

In this plan, your monthly payment formula is limited to 10% of the amount that your adjusted gross income exceeds 150% of the poverty line, divided by 12 (months).

So, for instance, if you are single and your income is $16,245 (and you live in one of the lower 48 states- the poverty line is higher in Alaska and Hawaii) you would pay $0.

If your income is more than that, then the 10% of your income above that figure (divided by 12) would be your monthly payment.

Your income is adjusted lower for increased family size.

The "Health Care and Education Reconciliation Act of 2010 originally set these new terms (which used to be 15% of discretionary income and 25 years of payments for forgiveness) to go into effect for loans borrowed after July 1, 2014. But on Oct. 26, 2011, President Obama announced that the new monthly payment formula, called "Pay as You Earn", would begin Jan.1, 2012.

But it can only be done with federal direct student loans FFELP loans, Direct PLUS loans and federal consolidation loans that do not include Parent PLUS loans. Federal Perkins student loans require Direct student loans consolidation.Eligibility for this program will be determined by the amount of your loans relative to your income. If your payment under the standard college loan repayment program is more than 10% of your discretionary income, you will qualify. Your loan payment will never be more than it would have been under the standard repayment plan, unless you leave the program.

Your loan payment will be adjusted annually based on the documentation you supply. As of July 1, 2010, other types of documentation may be submitted along with your federal tax return forms, if you believe that your tax forms do not reflect your current income. This form needs to be used for alternative documentation.

After 20 years of payments, the remaining amount will be forgiven. (But it will be taxed as income.) For those employed in the public sector, loans will be forgiven after 10 years of payments. There is no federal student loan forgiveness under the extended government school loans repayment or graduated repayment plans.

How to Figure Loan Payments Under the Income-based Repayment Program

Student Loan Repayment Program... More info

If the monthly payment formula is not enough to cover the interest on your student loans, the interest will be paid by the government for up to three years. After that, the unpaid interest will be added to the principal balance of your loan.

Borrowers payments are applied in this order:

1. interest
2. fees
3. principal

One thing to be aware of- your adjusted gross income does not take into account all the expenses that you will accumulate as the years go by. (mortgages, car loans, medical expenses, property taxes, personal loans, credit cards, etc.)

So, as your income (on paper, at least) grows, so will your loan payment even if it does not seem as though you have more money to spend on it.

Here's some useful pages for you to see:

State student loan forgiveness programs

Consolidate college loans

Government financial aid offices