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What is Income-Based Repayment?

When enrolled in an income-based repayment plan, your loan payments are capped at a percentage of your monthly income, and your remaining loan balance will be eligible for forgiveness after 20 or 25 years, depending on the plan.

The federal government offers four main income-driven repayment plans, which allow you to cap your loan payments at a percentage of your monthly income. When enrolled in one of these plans, your remaining loan balance will be eligible for forgiveness after 20 or 25 years, depending on the plan.

Types of Income-Driven Repayment Plans

Traditional Income-Based Repayment
The biggest thing to keep in mind with Income-Based Repayment (IBR) is that its features change depending on whether you took out your loans before July 1, 2014, or from that date on. Borrowing before that date will qualify you for Old IBR, which caps payments at 15% of your discretionary income and forgives your loans after 25 years of payments. New IBR improves on those numbers, shrinking them to 10% and 20 years, respectively.

Pay as You Earn
Pay As You Earn, or PAYE, is an income-driven repayment plan that caps federal student loan payments at 10% of your discretionary income and forgives your remaining balance after 20 years of repayment. You’ll likely qualify for PAYE if you can’t afford your payments and didn’t start college until after 2007.

Borrowers who enrolled earlier may still be eligible if they did all of the following:

    • Took out federal student loans after Oct. 1, 2007.
    • Didn’t have a federal student loan balance when taking out those loans.
    • Received a direct loan on or after Oct. 1, 2011.

Pay as You Earn is best suited for those that have graduate school debt, expect their income to stay the same, and/or are married.

Revised Pay as You Earn
Revised Pay As You Earn, or REPAYE, is an income-driven repayment plan that caps federal student loan payments at 10% of your discretionary income and forgives your remaining balance after 20 or 25 years of repayment.

Revised Pay as Your Earn is best suited for those that don’t have graduate school debt, expect their income to rise, and/or are single and expect to stay that way.

Income-Contingent Repayment
Income-Contingent Repayment (ICR) costs more each month than other income-driven repayment plans. ICR caps payments at 20% of your discretionary income and lasts 25 years. Still, this plan may be your best income-driven choice if you have parent PLUS loans or a consolidation loan that includes parent PLUS loans and/or if you want slightly lower payments to pay less interest potentially.

You can figure out what your payments will look like under different plans with the student aid loan simulator.  You can also call your servicer and have them place you on the plan you qualify for that has the lowest monthly payment. All borrowers with eligible federal student loans can sign-up for a program.

Which Loans Are Eligible for What Programs?

Loan Type REPAYE Plan PAYE Plan IBR Plan ICR Plan
Direct Subsidized Loans Eligible Eligible Eligible Eligible
Direct Unsubsidized Loans Eligible Eligible Eligible Eligible
Direct PLUS Loans made to graduate or professional students Eligible Eligible Eligible Eligible
Direct PLUS Loans made to parents Not eligible Not eligible Not eligible Eligible if consolidated*
Direct Consolidation Loans that did not repay any PLUS loans made to parents Eligible Eligible Eligible Eligible
Direct Consolidation Loans that repaid PLUS loans made to parents Not eligible Not eligible Not eligible

Eligible

 

Subsidized Federal Stafford Loans (from the FFEL Program) Eligible if consolidated* Eligible if consolidated* Eligible Eligible if consolidated*
Unsubsidized Federal Stafford Loans (from the FFEL Program) Eligible if consolidated* Eligible if consolidated* Eligible

 

Eligible if consolidated*

 

FFEL PLUS Loans made to graduate or professional students Eligible if consolidated* Eligible if consolidated* Eligible

 

Eligible if consolidated*

 

FFEL PLUS Loans made to parents Not eligible Not eligible Not eligible Eligible if consolidated*

 

FFEL Consolidation Loans that did not repay any PLUS loans made to parents Eligible if consolidated* Eligible if consolidated* Eligible

 

Eligible if consolidated*

 

FFEL Consolidation Loans that repaid PLUS loans made to parents Not eligible Not eligible Not eligible Eligible if consolidated*

 

Federal Perkins Loans

Eligible if consolidated*

Eligible if consolidated*

Eligible if consolidated*

 

Eligible if consolidated*

 

 

*If a loan type is listed as “eligible if consolidated,” this means that if you consolidate that loan type into a Direct Consolidation Loan, you can then repay the consolidation loan under the income-driven plan. For example, only Direct Loans can be repaid under the REPAYE, PAYE, and ICR plans. However, if you consolidate a FFEL Program Loan or Federal Perkins Loan into a Direct Consolidation Loan, you may then be able to repay the Direct Consolidation Loan under the REPAYE, PAYE, and ICR Plan (depending on the type of loan that you consolidate). Note that consolidation is not the right choice for all borrowers or all loan types. In particular, you may lose certain loan benefits if you consolidate a Federal Perkins Loan.

Navigating the landscape of student loan repayment can be a challenging task to take on by yourself. Reaching out to a professional can help reduce your chances of making a bad choice that turns out to be permanent. A Certified Student Loan Professional (CSLP) can help navigate the myriad of options and choices available to help make sure your overall plan is one you can live with both financially and personally.

Are you ready to take the next step for your financial plan? Schedule a FREE consultation with me to learn how you can optimize your budget by clicking HERE.

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