Student Loans

Income-Driven Repayment Plans for Student Loans

by George Spearov
Written by George Spearov

Congratulations on graduating!

Now it’s time to start repaying your student loans. If you have a Federal student loan, you have options for repayment that I went over in a related article.

This article will go in-depth on Income driven repayment plans so if this is the road you decide to take to pay back your student loan, you will know enough to make good decisions.

There are four income-driven repayment plans available to help you pay back your student loans.

The Four Types Of Income-Driven Repayment Plans:

  1. Revised Pay As You Earn Repayment Plan (REPAYE Plan)
  2. Pay As You Earn Repayment Plan (PAYE Plan)
  3. Income-Based Repayment Plan (IBR Plan)
  4. Income-Contingent Repayment Plan (ICR Plan)

If you’re struggling to make payments on your student loans, then you might want to check out one of these plans. They’ll allow you to pay less interest over time while paying down your principal faster.

The good news is, Federal income driven repayment plans not only help reduce the amount you owe each month, but also save money in the long run.

What are income-driven repayment plans for student loans?

Income-driven repayment plans are student loan repayment plans that based on the borrower’s income.

These plans can help make student loan payments more affordable for borrowers who are struggling to make ends meet. Each of the four plans has its own eligibility requirements and repayment terms.

These plans are available for federal student loans like direct loans, PLUS loans, and Perkins loans.

Here’s A Quick Overview Of Each One:

Revised Pay As You Earn Repayment Plan (REPAYE Plan).

Under this plan, your monthly payment is based on your income and family size. If you ever make more money than you do now, and that makes your monthly payment go up, you will still be on the PAYE or IBR plan. But instead of your monthly payment being based on your income, it will be the amount you would pay under the 10-year Standard Repayment Plan.

Also, if your income goes down again you can apply to recertify your income and family size and get reduced payments again.

You may be eligible for this plan if you have Direct Loans or Federal Family Education Loan (FFEL) Program loans. If you have FFEL Program loans, your only income-driven repayment plan option is the IBR Plan. However, if you consolidate your FFEL Program loans into a Direct Consolidation Loan, you’ll then have access to the REPAYE, PAYE, and ICR plans.

Repayment term:

  • If you’re repaying loans you received for undergraduate study, the repayment term is 20 years.
  • If you’re repaying any loans you received for graduate or professional study, the repayment term is 25 years.

Pay As You Earn Repayment Plan (PAYE Plan)

The PAYE Plan is a repayment plan for student loans that is based on your income.

Your monthly payment will be10% of your discretionary income, and it will be recalculated each year based on your updated income and family size. If your income decreases or your family size increases, your monthly payment will change.

Discretionary income is the difference between your adjusted gross income and 150 percent of the poverty line for your family size. If your monthly payment amount is less than what you would pay under the Standard Repayment Plan, the remaining balance of your loan will be forgiven after 20 or 25 years, depending on when you received the loan.

Repayment term:

20 years

Income-Based Repayment Plan

The Income-Based Repayment Plan is a repayment plan that is based on your income and family size. If your income is low or you have a large family, you may qualify for this repayment plan. Your monthly payments will be lower than they would be on other repayment plans.

This plan allows borrowers to cap their monthly payments at 12 percent of their discretionary income while they’re enrolled in school. If they have any discretionary income left over after repaying those monthly payments, they can then choose between deferring their remaining debt or making additional payments until it is paid off. After enrolling in this plan, borrowers can only switch back to the Standard or IBR plans if they become ineligible for the Income-Based Repayment Plan due to new financial circumstances.

Repayment term:

  • 20 years if you’re a new borrower on or after July 1, 2014
  • 25 years if you’re not a new borrower on or after July 1, 2014

 

Income-Contingent Repayment Plan (ICR Plan)

The Income-Contingent Repayment Plan (ICR Plan) is a repayment plan available to borrowers of Direct Loans and FFEL Program Loans. Under this plan, your monthly payment amount is based on your adjusted gross income (AGI), family size, and total amount of your Direct Loans. You will pay each month for up to 25 years, and if you still have a balance at that time, the remaining amount will be forgiven.

There are two main benefits to the Income-Contingent Repayment Plan (ICR Plan).

  1. It allows borrowers to make lower monthly payments based on their income.
  2. It forgives any remaining loan balance after 25 years of repayment.

If you have a PLUS loan that you got from your parents, you can’t repay it using any of the income-driven repayment plans. But your parents can consolidate their Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan. Once they do that, they can repay the new consolidation loan using the ICR Plan.

Repayment term:

25 years

Who is eligible for income-driven repayment plans?

Income-driven repayment plans are intended for borrowers who struggle to make payments or don’t qualify for standard repayment plans. Eligibility for these plans is determined by a borrower’s income and family size. To be eligible, the borrower must have an economic hardship, a qualifying loan debt, and a qualifying monthly payment amount.

  • Individuals with an income below $50,000 per year.
  • Individuals who have had their credit rating lowered due to financial hardship.
  • Individuals with a disability.
  • Individuals who have experienced a loss of employment.
  • Individuals who have lost their job or have reduced hours at work.
  • Individuals who have recently moved out of state or country.
  • Individuals who are unemployed.
  • Individuals who cannot afford to pay for college.
  • Students who are unable to find a job after graduation.
  • Individuals who live in rural areas.
  • Individual who lives in a military base housing area.
  • Individuals who need to attend school full-time.
  • Individuals who must take care of a child under age 6.
  • Individuals who want to start a business.
  • Individuals who own a home.
  • Individuals who owe money on a mortgage.
  • Individuals who were laid off from a job.
  • Individuals who received unemployment
  • Individuals whose credit score has been lowered because they have missed payments on other loans or debts.

What are the benefits of income-driven repayment plans for student loans?

There are 3 main benefits of income-driven repayment plans for student loans.

  • Lowers your monthly payment amount, which can make it easier to manage your loans.
  • If you have a high debt-to-income ratio, an income-driven repayment plan can help you get your loans forgiven after a certain period of time.
  • These plans can help you keep your loan payments affordable if your income changes in the future.

An IRP also provides you with the opportunity for forgiveness on your federal student loan debt if you meet certain requirements.

The requirements are that you must have made payments for 20 to 25 years (depending on the plan you choose) and that you must have made those payments under certain conditions, such as making them on time and in full.

If you meet these requirements, the remaining balance on your loan will be forgiven.

Final Thoughts

Income driven repayment plans are a great way to pay off your student loans. They allow you to make payments based on what you can afford, not just what is due. However, they do have some drawbacks. You will need to be disciplined and stick with it for at least 10 years in order to get out of debt faster. If you don’t, you may end up paying more in interest than you would have paid under standard payment plans.

I hope this information helps you in your decision.

You may also like

Mortgage Loans

Frequently Asked Questions 1st Time Home Buyers Ask

by George Spearov

There are many things to consider when buying a home, from the initial decision to start looking, to negotiating with the seller and finally closing on the property.  If you’re a first-time homebuyer, you may have questions about each stage of the process. To help you out, we’ve compiled a list of questions in three categories: Looking for a home, Realtors and Offer and Acceptance LOOKING FOR A HOME FAQS When Is It Time To Stop Renting, And Buy A Home? The decision to buy a home vs. rent depends on many factors, including your financial situation, your lifestyle, and your long-term goals. Ultimately, you’ll need to decide what’s best for you. If you’re looking to build equity and have a place to call your own, buying a home may be the right choice. On the...

Read more
Point of Sale

Choosing the Right POS for Your Business

by George Spearov

What kinds of businesses exist nowadays? If you have asked yourself this question, the correct answer fits in one word: various. Businesses are the answer to all our desires and needs, and their sole existence is based on how we humans can be fulfilled in our lives. From our basic needs for healthcare, food, entertainment, etc., to our hobbies and niche interests, businesses base their entire reasons on what they can do to accommodate us. And to make it more clear, businesses don’t necessarily require a big structure; an individual who provides a solution to someone’s problem and charges a fee for this represents a business. From big multinationals and renowned brands to freelancers and crafters who sell their products through social media, the many faces of business exist to make our...

Read more
CRM

What Is a CRM System?

by George Spearov

Technological advancement is a significant contributor to modern-day business growth. Before the introduction of CRM systems, it was very difficult to support businesses growing needs. Information was saved on papers, was prone to human errors, and was less efficient. With the introduction of new technologies, processes became faster, effective, scalable, without human errors, brought faster data transfer, and provided excellent business management. What Is CRM?  CRM stands for Customer Relationship Management. It is software that executes essential business tasks that combine sales, marketing, and customer support. CRM promotes the automation of almost all processes in businesses and also works as a tool for aligning work processes, policies, and peers. Here are our CRM reviews Observing...

Read more
Tax Relief Loans

4 Ways to Pay Back Taxes With The IRS Fresh Start

by George Spearov

Taxpayers who owe back taxes often feel trapped. They’ve already paid their penalties, interest, and fines, and now they’re being hounded by collection agencies. It feels like there’s nowhere left to run. The IRS Fresh Start program can help taxpayers struggling to pay their federal taxes. The program was expanded in 2018 to include more flexible Offer-in-Compromise terms, which will enable some of the most financially distressed taxpayers to clear up their tax problems more quickly. In this post, I’ll share with you four Fresh Start options for taxpayers who owe back taxes, and explain how each option works.  This will help you to get back on track without having to pay additional fees. 4 Fresh Start Options For Taxpayers Behind On Their Tax Payments:  Installment...

Read more
Tax Relief Loans

What to Look for When Choosing a Tax Relief Provider

by George Spearov

If you owe back taxes and don’t know how you’re going to pay the debt, don’t panic. Take a deep breath and consider your options.  The FTC, the nation’s consumer protection agency, says that if you are having trouble paying bills, it’s often better to try to work out a payment plan with the IRS yourself than to pay someone else to negotiate a plan for you.  But is it? There are many companies offering tax relief services online. Some of these companies claim to offer free consultations and help with filing taxes. Others promise to get rid of penalties and interest charges. Still others will even file your return for you. Unfortunately, not all tax relief companies are legitimate. They prey on desperate taxpayers who are looking for quick fixes. These scammers...

Read more