Working mom Gina Weaver just got some good news about the $25,000 in student loans she still owes, and the $20,000 her husband owes, thanks to a new federal program that caps monthly payments based on income and family size. “We have lots of student loans,” says the Baltimore social worker and mom to Sam, 7. “I’m applying for loan forgiveness.” Gina is among millions of borrowers who could benefit from a new income-based student loan repayment plan (IRB) that went into effect July 1. The plan will make monthly student loan payments more manageable and affordable in this tough economy. The federal program caps monthly loan payments at 15 percent of the borrower's income. In the past, borrowers had to pay a certain amount of their federal student loan each month, regardless of their income.

And under the new program, if you lose your job or are forced to take a pay cut—fears many families face in this recession--the amount you have to pay back per month will drop. This gives peace of mind to working moms like Beth Lewter, who’s struggling to repay two sets of loans. “My student loans were originally around $17,000,” says Beth. “I began paying them about 10 years ago when I graduated from South University in West Palm Beach.” Now the Florida paralegal, who’s divorced, is repaying not only the $6,800 balance on her own student loans but $30,000 for her 20-year-old daughter. The debt has been so debilitating that she’s had to tell her 18-year-old daughter, who’s headed to college this fall, that she’s tapped out. “I find myself in the difficult position of not being able to offer her any assistance,” says Beth. To determine if you or your child is eligible to participate in the new program, you can ask your lender or use the calculator on the U.S. government website: (http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp). This calculator takes into account your income, family size, and state of residence to calculate your IBR monthly payment amount. If that amount is lower than the monthly payment under a 10-year standard repayment plan, then you’re eligible to repay your loans under IBR. In general, those who qualify for the program face high student loan debt relative to their income and family size.

How much lower can your monthly payments be? Take for example a recent graduate with $30,000 in federal student loans and a starting salary of $25,000. Under an IBR plan, this borrower's monthly loan payment would be reduced to $110 a month, a third of the $345 they would be required to pay under a standard 10-year repayment plan.

Loans eligible for repayment under IBR include any Stafford, Grad PLUS or Consolidation loan made under either the Direct Loan or FFEL program, except loans that are in default, parent PLUS Loans, or consolidation loans that repaid a parent PLUS Loan. The loans can be new or old, and for any type of education--undergraduate, graduate, professional, job training. While this may be a great savings for many, like every program, downsides exist. In terms of interest payments, if you have a subsidized Stafford loan, then the government will pay the interest for the first three years in IBR.  For all unsubsidized federal loans, the unpaid interest will continue to accrue. There is another term to weigh. In addition to increased interest charges, lower payments may result in longer repayment periods. If a borrower can afford to pay more than 15% of their discretionary income on student loan payments, then they’d be worse off if they stuck to the IBR repayment schedule, according to the Department of Education. Of course, a borrower can always opt to pay more than the monthly payment when they can afford to.

One big upside of the plan is likely to be a reduction in the number of people who default on their student loans, says Carmen Berkley, president of the U.S. Student Loan Association, an advocacy group with 4.5 million members. Indeed the benefits of the IBR plan are many. If students are still paying back college loans after 25 years, they’ll be eligible to have all debt erased. And if students go into a public-service career, they’re eligible for loan forgiveness after 10 years. While participants in programs such as AmeriCorps, the Peace Corps and the military have long been eligible for loan reduction or forgiveness, this new program expands such exemption to potentially hundreds of thousands more students.

The College Cost Reduction and Access Act that created the new IBR program was signed into law in 2007 to help make student loan payments more manageable. According to Rep. George Miller, the Democratic chairman of the House committee that worked on the new bill, the current recession has made the IBR program critical. "The U.S. college affordability crisis is only worsening and to top it off, this year's graduating class is about to enter the toughest job market for college graduates in 25 years," he said in a release.

At 2.3 million, the class of 2009 is the largest class to graduate college to date. According to the National Association of Colleges and Employers, just 20 percent of 2009 graduates who applied for a job have one, a 30 percent drop from two years ago. Says Rep. Miller, “These new benefits will give borrowers a much-needed lifeboat.” Working mom Donna Sanchez couldn’t agree more. She’s paying back $50,000 in student loans on an income of $60,000 while raising a two-year old and a six-year-old. “With all my living expenses, paying off this debt in a timely manner is a constant challenge and almost impossible,” she says. “I’m concerned about paying off my school debt before my kids are ready go to college!”