Depending on how much (or little) you earn, maybe.

If you've got a diploma hanging on your wall, chances are it didn't come cheap. About two-thirds of the 3 million or so college seniors who donned a cap and gown this year took on an average debt of $22,500 for the privilege of that diploma. The debt of graduate and professional students is often tens of thousands more.

As graduates struggle to find jobs during the worst economic crisis of their lifetime, an adviser to the secretary of education has already said he expects that the default rate on student loans, which cannot be easily renegotiated or discharged in bankruptcy, will rise.
But a provision of the College Cost Reduction and Access Act of 2007 that reduces the monthly payments of hundreds of thousands of borrowers who qualify for the new Income-Based Repayment plan takes effect today. Borrowers who work in certain public service jobs could also have the balance of their loan erased after making qualifying payments for 10 years. (Supposedly, this costs the government nothing, since it will now change the way it subsidizes student-loan lenders.)

So will your student loan be bailed out?

In a word: maybe.

At the very least, IBR will lower the monthly payments of people who accumulated significant federal student loan debt but don't have the income to make the payments on the standard 10-year repayment plan. This relief may reach as many as 1 million people, according to the Project on Student Debt. And despite lower payments, they won't be paying their loans off indefinitely—any remaining balance will be forgiven after making payments for 25 years. (More information and a video are available here.)

Basing loan payments on income isn't a new concept. For years, graduates with federal student loans had options to reduce or eliminate their payments, depending on how much money they made. But IBR is intended to be more generous than that.

IBR caps monthly payments at 15 percent of earnings above 150 percent of the poverty line, or $10,830 for a single-person household. Online calculators can help you compare what your income-based payments, income-contingent payments, and income-sensitive payments would be.

There are some situations where an IBR payment would be zero if a borrower earns below 150 percent of the poverty line for his family size. If your payment is zero, or is so low it doesn't cover the interest accruing on your loan, for the first three years in IBR the government will continue paying the interest on subsidized Stafford loans, which are government-backed loans given to financially needy students that do not accrue interest while the borrower is in school. After that period, and for all of the other kinds of unsubsidized federal loans, unpaid interest will accrue but will not compound. In other words, you won't be charged interest on top of interest.

Borrowers who think they could benefit from IBR should contact their lender and ask for an application that will authorize the release of their adjusted gross income from the Internal Revenue Service each year.