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Income Driven Repayment Plan

Student Loan debts are at all times high and can be hard to pay off for some, especially if the monthly payments are beyond the means. Fortunately, there are programs that help in this and make payments more manageable. If the student loans are federal they can be placed into an Income-Driven Repayment plan which is based on the income of the borrower. Doing so makes the payment more economical and manageable than a standard 10-year plan.

Income Driven Repayment Plans include programs like income- based repayment plan, Pay as you earn, revised pay as you earn and income contingent repayment plan.

Choosing a plan can be confusing and overwhelming. To help you further please read the breakdown of these programs below.

Income Based Repayment Plan

This program caps off monthly payments at 10 or 15 percent of your discretionary income. The program takes into account your AGI(adjusted gross income), Family size and loan amount. This plan can prove beneficial to borrowers who are struggling to make their standard payments.

This payment plan can be applied to the following federal loan types.

  • Federal Perkins loan(if they are consolidated)
  • FFEL Consolidation Loans
  • FFEL Plus loans made only to professional and graduates (FFEL PLUS Loans made to parents are ineligible)
  • Subsidised Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans
  • Direct Consolidated Loans
  • Direct PLUS Loans excluding the parent PLUS loans
  • Subsidised Direct Loans
  • Unsubsidized Direct Loans

Basically all Federal Loan types can qualify to be in an IBR escape for the loans given out to the parents, Just the key point to remember is that in order to be enrolled in this plan your new income has to be lower than the standard plan and you have to make the payments on time in order to obtain forgiveness at the end of term.

The payment amount is typically 10-15 percent of discretionary income. The 10 percent is normally applicable to new borrowers who have not borrowed under the Direct Loan or FFEL Program until July 1, 2014, or later. Anyone who borrowed before that date gets the rate of 15 percent.

The payment term for this program is 20 – 25 years. The 20-year term is for those who took the loan on or after July 1, 2014, and 25 years for anyone else. After making these payments on time for the term rest of the balance is eligible for forgiveness.

The formula for calculation of IBR is;
AGI – (Poverty Line x 150%) = Y (Y x .15) / 12 = IBR PAYMENT.

Pay As You Earn

Pay as you earn was rolled out in 2012. It is very similar to the income-based repayment plan but has more restrictions. The plan also bases your payment on your income, family size and your loan balance, In order to qualify for this program, you have to be able to meet certain requirements.

  • The forgiveness on these plans happen 20 years of making on-time qualifying payments
  • You must be a new borrower meaning you must have an eligible Direct Loan that has a disbursement day of on or after October 1, 2011.
  • You cannot have an active balance from a loan that was disbursed on or before October 1, 2007.
Eligible Loans
  • Direct Consolidated Loans
  • Direct PLUS Loans excluding the parent PLUS loans
  • Subsidized Direct Loans
  • Unsubsidized Direct Loans
Eligible Loans Only If Consolidated
  • Federal Perkins loan(if they are consolidated)
  • FFEL Consolidation Loans
  • FFEL Plus loans made only to professional and graduates (FFEL PLUS Loans made to parents are ineligible)
  • Subsidised Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans

To take advantage of this program the recalculated income has to be lower than your standard plan. The repayment term for this program is 20 years. The payment amount is 10 percent of discretionary income.

Revised Pay as You Earn (REPAYE)

This is the newest repayment plan that was rolled out in December 2015. It is very similar to PAYE with a few differences that set it apart. The main difference being that there is no set disbursement of loans date. More than 5 million borrowers are able to qualify for the REPAYE and get their student loan payments as allow as 10 percent of their discretionary income. In order to qualify the following criteria must be met;

  • Make qualifying payment for 25 years for the borrowers that are graduate level and 20 years for borrowers in undergraduate level.
  • Have at least one eligible graduate level federal student loan for 25 years.
  • Have federal student loans that are undergraduate level.
Eligible Loans
  • Direct Consolidated Loans
  • Direct PLUS Loans excluding the parent PLUS loans
  • Subsidized Direct Loans
  • Unsubsidized Direct Loans
Eligible Loans Only If Consolidated
  • Federal Perkins loan(if they are consolidated)
  • FFEL Consolidation Loans
  • FFEL Plus loans made only to professional and graduates (FFEL PLUS Loans made to parents are ineligible)
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans

The point to note is that some student loans including Federal Family Education Loan Program (FFELP) Loans, Federal Direct Parent PLUS and Federal Direct Consolidation Loans having at least one Federal Parent PLUS Loan.are not eligible for this plan, Eligible student loans after they are in a repayment status can be placed on the REPAYE Plan.

Income Contingent Repayment Plan (ICR)

The Income Contingent Repayment plan is different from the other Income Driven Repayment Plans. The main difference is that there are no requirements for income eligibility. If you are ineligible for any other Repayment plans and want to further lower payment you can sign up for this.

Eligible Loans
  • Direct Consolidated Loans
  • Direct PLUS Loans excluding the parent PLUS loans
  • Subsidized Direct Loans
  • Unsubsidized Direct Loans
Eligible Loans Only If Consolidated
  • Federal Perkins loan(if they are consolidated)
  • FFEL Consolidation Loans
  • FFEL Plus loans made only to professional and graduates (FFEL PLUS Loans made to parents are ineligible)
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans

Under this program, your remaining balance is forgiven after 25 years of qualifying payments. Consolidation loans containing parent PLUS loans that started repayment before 2006 and Parent PLUS loans do not qualify.

Payment amounts are the lesser of:

20 percent of your discretionary income.
Your payment amount on a 12-year repayment plan that is fixed. Adjusted according to income.

The formula for calculation of payment for ICR is;

Payment = ((AGI – Poverty Line) x 20%) / 12

Why choose an Income-Driven Repayment Plan

Making a choice of an income-driven repayment plan can help you manage your federal student loan payments. Which program suits you best? Some of the things that can help you are;

  • What your estimated loan payment will be?
  • Do you qualify for the programs based on your income and family size?
  • Do you need forgiveness on your loans or are you able to pay it off before the repayment term is over?

Student Loan Programs

The Federal government has two types of loan programs to choose from.
1. Direct Loan Program
2. Federal Perkins Loan

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