Struggling to pay your federal student loans and the rest of your living expenses?

Starting July 1, some college graduates will be able to get lower loan payments under the federal government's new Income Based Repayment Plan, which calculates monthly payments based on a person's income and family size.

The program will be open to graduates who have a Stafford, Graduate PLUS or consolidation loan made under either the William D. Ford Federal Direct Loan or Federal Family Education Loan programs. The loans could be for undergraduate, graduate or professional studies as well as for job training. (Loans currently in default, parent PLUS loans and consolidation loans that include a parent PLUS loan don't qualify.)

"If you're earning a lot less than you thought you would short term or long term, you can make affordable payments on your loan, stay in good standing and have a light at the end of the tunnel," says Lauren Asher, president of the Project on Student Debt, a consumer group based in Berkeley, Calif.

Immediate Relief

Under the plan, annual loan payments will be 15% of the difference between a borrower's gross income and 150% of the federal poverty-level income, which depends on family size and state of residence. Monthly payments will be one-twelfth of that amount. For a single borrower in New York with no children, for example, the 150% would equal about $16,000.

So, if that single borrower makes $30,000 a year and has a $25,000 student loan, he or she would have a monthly payment of about $172 under the IBR plan -- compared with a $288 monthly payment under a standard 10-year payment plan with 6.8% interest, according to the U.S. Department of Education.

You'll generally qualify if you owe about as much in federal student loans as you make in a year, says Ms. Asher. "This is hugely important," she adds, "especially right now when so many people are encountering much worse job prospects than they could have imagined when they first borrowed [money] for a graduate or bachelor's degree."

If you make less than 150% of the federal poverty level, your monthly payment -- which is recalculated annually -- would be $0 until your salary increases.

One caveat: The lower payments extend the life of your loan, so you may end up paying more interest in the long run.

And After 25 Years...

To enroll in the plan, contact your lender. Borrowers will have to submit copies of their tax returns or other approved income documents annually for monthly payments to be recalculated.

The Department of Education has more information and a calculator that estimates monthly payments, at studentaid.ed.gov. The Project on Student Debt has a video explaining the plan and its own payment calculator, at IBRinfo.org.

After 25 years of qualifying payments, the principal loan balance may be forgiven.

Loan payments made under the standard 10-year repayment plan also count toward the 25-year requirement. Time granted for hardship loan deferments counts as well. The lender is responsible for keeping track of which payments qualify.

In addition, people in the IBR plan remain eligible for the Public Service Loan Forgiveness Program, which forgives loan balances for people with Direct Loans who work in the public sector for 10 years.