With many students facing poor job prospects upon graduation along with the mounting debt of student loans, credit problems can quickly escalate. And the problem isn’t just for recent grads – many individuals carry student loan debt for decades after graduation. If you don’t keep up with your payments, a default on your student loan can mean big problems when you try to get approved for credit down the line. Fortunately, there is a new option available for you if you’re struggling to maintain those payments and keep your credit rating clear.

Effective July 1, 2009, the government is instituting a new repayment plan called Income Based Repayment, or IBR.  This new payment plan adjusts your payments to reflect your income as well as your dependents. After 25 years, if you still have a balance on the loans, that balance is forgiven. For individuals who have low income or several dependants, this provides a viable way to keep your credit rating clear, while still maintaining affordable payments throughout your loan term.

Student loan debt is often a factor when determining whether or not you qualify for credit. Unless you are currently in deferment or forbearance, the total amount of your student loan debt is part of your debt-to-income ratio. However, most lenders view student loan debt as “good” debt, and are less likely to penalize you in that regard. Showing a consistent payment history out of forbearance and/or deferment can help to build credit as well – if your monthly payments are lower under IBR, this can also be a factor when creditors are deciding whether or not you have the ability to repay.

Regardless of whether or not you have your student loan payments adjusted under IBR or some other program, it’s important not to let payments on student loans lapse. While having student loan debt may not prevent you from qualifying for the credit that you deserve, missed payments on student loans certainly can. And because student loans fall under a special category of debt, in most cases you cannot have student loans discharged with bankruptcy, or any other means. If student loans are a potential tipping point for you with regards to your ability to repay financial obligations, IBR’s lower payments may be useful to you as well.

For individuals who have a higher income level, or who expect to have a higher income level in the future, IBR may not be the best option. Because the repayment plan is so lengthy, it is best suited for individuals with lower income jobs over the long term. If you have a temporary financial setback, forbearance and deferment are still your best options. Whichever repayment or deferment option you choose, you should check your credit report to ensure that it accurately reflects your current payment status. Often, missed payments can be removed from the credit report if you have your deferment or forbearance take effect retroactively – this will give you a clean slate to start with when you begin your repayment again, and will give your credit scores a natural boost as well.