Beginning in 2012, about 1.6 million student loan borrowers will be able to make smaller monthly payments and make fewer payments before their balances are forgiven. President Obama announced these changes to the Income-Based Repayment Plan on October 26, 2011.

Here’s a short summary of the changes:

1. Monthly payments:  Under the Income-Based Repayment Plan, payments top out “at an amount intended to be affordable based on your income and family size.” The payment amount has been 15% of disposable income, but it’s going down to 10% only for students who are currently taking out Federal student loans or who have yet to take out new Federal student loans.

2. Repayment term:  The 25-year repayment period under the plan will be shortened to 20 years.

So if your income is low enough, your payments can be very low over the 20-year period.

Unfortunately, these Income-Based Repayment Plan changes only apply to people who 1) Graduate in 2012 or later, 2) Took out their first student loan no earlier than 2008, and 3) Will be taking out at least one new federal student loan in2012 or later. It is designed only for current and future student loan borrowers.

But even if you don’t qualify for new Income-Based Repayment Plan changes, the older version requiring payments of 15% of your income over 25 years can help by saving you money in your budget.

But a major limitation is that the Income-Based Repayment Plan does not apply to private student loans. To discover your options regarding private student loans, you must contact your lender.

And even if you do have a federal student loan, you cannot be in default on the loan to qualify for this Plan. To find out what type of student loans you have and their default status, go to the National Student Loan Data System for this and related information.

Photo by a.mina.