Students are taking on more debt than ever to pay for college and sometimes find themselves unable to make ends meet when they graduate. But thanks to a new federal student loan repayment program that went into effect this month, relief may be in sight for many.

Under the new plan, monthly payments will be based on how much borrowers make instead of how much they owe. And, after 25 years of faithful payments, any remaining balance will be canceled. The debt could even be wiped out in 10 years if the student chooses a career working for the government or a nonprofit agency.

"It's a very good plan for people experiencing financial difficulty," said Mark Kantrowitz, publisher of Finaid.org and Fastweb.com, top Web sites for student financial aid and scholarship information.

"For most borrowers, the income-based repayment will yield a monthly payment that is less than 10 percent of their monthly income, which is affordable."

How much borrowers will have to pay back depends on income, debt and the number of people in a household.

The U.S. Department of Education has created a chart that says for those who are single and earn less than $20,000 a year, the monthly payment will be $0. At $20,000 a year, a single borrower would pay back $47 a month. Someone earning $40,000 and who has a wife and three children would pay $87 a month. For more information, go to http://studentaid.ed.gov.

In the first three years, any unpaid interest on Stafford Loans is covered by the federal government. After that, the interest is added to the back of the loan as part of the principal, which will be forgiven if and when the debt is canceled.

The program does demand participants do their part or lose the perks.

Borrowers on the 25-year plan, Mr. Kantrowitz said, could lose the loan forgiveness if they are more than 360 days late with a payment.

The bar is even higher for grads under the 10-year Public Service Debt Forgiveness program, according to Sandra Cronin, director of financial aid at Point Park University. She said those borrowers cannot have any late payments.

"They must have 120 monthly on-time payments for 10 years," Ms. Cronin said of students who choose teaching, social work or government careers. "Since they can't be late, they are better off setting up an automatic debit where the payments are taken out of their bank accounts."

Making college loan repayment based on income is an idea that has been floating around higher education circles for a generation; but a large number of technical questions have always blocked its implementation, said Terry Hartle, a senior vice president at the American Council on Education in Washington, D.C.

In 2007, Congress passed the College Cost Reduction and Affordability Act, which mandated the Department of Education develop such a plan, and provided the funding to make it possible.

"The goal is to help people repay their student loans after they've been to college," said Mr. Hartle, who represents a trade association of 2,000 two-year and four-year public and private colleges and universities.

"As students have borrowed more money to go to college, a small but nonetheless growing number of them experience difficulty in repayment. These new initiatives are designed to help them and create an incentive to encourage college graduates to pursue public service careers," he said.

The new federal plan took effect on July 1.

Although loans have become the primary form of federal student aid, the federal programs still fail to provide enough aid to all students and many must resort to private loans. Private loans carry higher interest rates and do not qualify for the reduced payments or balance cancellation.

About 80 percent of all student loans are made through the federal government, Mr. Kantrowitz said, adding that last year students borrowed $85 billion from the federal government and $22.5 billion from private lenders

In the 2007-2008 school year, U.S. college graduates had an average student loan debt of $23,186, according to FinAid.org, a financial-aid Web site.

The reduced income repayment program is available for only federal student loans under the Stafford, Grad Plus and federal consolidated loan programs. It applies to Perkins Loans only if they're consolidated into the federal Family Education Loan or Direct Loan programs.

Loan balances must be at least $30,000 to qualify for the reduced payment, and student loans currently in default are not eligible for the reduced payments.

"The borrower does need to prove [he is] qualified for the reduced payment on an annual basis," Ms. Cronin said.

When students accumulate excessive debt to get an education, it impacts other life decisions, such as getting married, having children and their career choices.

But student loan debt is only part of the challenges facing today's graduates. Many also are juggling record levels of other types of debt such as credit cards, car loans and mortgages.

David Rye, author of the "Complete Idiots Guide to College Financial Aid," said the reduced income payment plan could dramatically lower the monthly payments on student debt for college graduates and will be a big relief on household budgets that are likely under pressure.

"It gives them more disposable income," he said. "It would be a good thing if they used the extra income to pay off debt rather than use it for luxury items they don't need, like a better car or a vacation.

"They need to use this opportunity to liquidate debt and not buy other debt."