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Income-Driven Repayment Plans

Which income-driven repayment plan is right for you?

For those paying off their student loans, but are having difficulty meeting their monthly payment then an income-driven repayment plan can help. These repayment plans reduce your monthly payments, which lower the amount you owe. Repayment plans that are based on your income help make your monthly payments more affordable and the amount you pay each month depends not only on your income, but also your family size. For each income-driven repayment plan, any remaining loan balance is forgiven after the repayment period ends. With every income-driven plan, your monthly payments may change depending on changes in the size of you family and fluctuations in your income. If you have Direct Loans then those loans are eligible for any income-driven repayment plan, but if you have FFEL then you’re only eligible for the income-based repayment plan, unless you consolidate your loans into a Direct Consolidation Loan.

Enrolling in an income-driven repayment plan is essential when qualifying for Public Service Loan Forgiveness. While loans under the 10-Years Standard Repayment plan qualify, there will be no remaining balance to be forgiven if you make all your monthly payments under this plan. That’s why using an income based repayment solution to pay off loans ensures you will have some balance left over after the repayment period.

If your monthly payments are getting out of hand, here are four repayment options that could help!

Revised Pay As You Earn Repayment Plan

Under this plan your payment amounts are determined as 10% of your discretionary income. The repayment period is 20 years to pay off student loans under this plan, if those loans are from undergraduate study. If you have loans from graduate study, the repayment period is 25 years.

Pay As You Earn Repayment Plan

Your payment amounts are usually 10% of your discretionary income, however, the amount will never be more than the amount on the 10-Year Standard Repayment plan. Under this plan, borrowers have a repayment plan of 20 years.

Income-Based Repayment Plan

If you’re a new borrower (borrowing on or after July 1, 2014) then your payment amount is 10% of your discretionary income and it will not be more than the amount on the 10-Year Standard Repayment plan. If you’re not a new borrower then your payment amount is 15% of your discretionary income and it will not be more than the amount on the 10-Year Standard Repayment plan. For new borrowers, the repayment period is 20 years and for those who aren’t considered a new borrower have a repayment period of 25 years.

Income-Contingent Repayment Plan

Payment amounts are calculated as either 20% of your discretionary income or the payment amount you would owe on a repayment plan with a fixed payment over a 12 year period. Either way your payment amount is calculated, the repayment period is 25 years.





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