Are Your Student Loan Payments Too High?

If student loan payments are eating up your monthly income, you may be eligible for an Income-Driven Repayment Plan — a plan that calculates your monthly payment based on your income, not the amount you owe. If your income is low enough, you could even be eligible for a payment of $0 per month! Moreover, if you pay on your loan using an income-driven repayment plan and still have a balance after twenty or twenty-five years (depending on the loan and plan), the remaining balance will be forgiven!

The advantages of income-driven repayment plans:

Payments based on your income, not on the amount you owe

Possibility of $0 monthly payments, depending on your income

Chance to have your balance forgiven after twenty or twenty-five years of payments under the plan

1. WHO’S ELIGIBLE?

The type of borrower you are plays a role in determining which income-driven repayment plan you are eligible for, as well as your income level.

If you are a Direct Loan borrower, you may be eligible for all four income-driven repayment plans. So, how do you choose? Find out which plan may provide the lowest monthly payment amount. You may contact us if you need help. (Please note: the PAYE plan is only available to new borrowers on or after October 1, 2007, who received a Direct Loan disbursement on or after October 1, 2011.)

If you are an FFEL Loan borrower, you only have one option: the IBR plan. (Please note: if you consolidate your FFEL Loan into a Direct Consolidation Loan, then you will also be eligible for the PAYE, REPAYE, and ICR plans. Terms and conditions may vary depending upon when you received your federal student loans.)

3. 

Repayment Amounts

The government does not expect you to spend all of your discretionary income on student loan payments! Depending upon the income-driven repayment plan you choose, your monthly payment will be ten, fifteen, or twenty percent of your monthly discretionary income.

• For both PAYE and REPAYE plans, your monthly loan payment is generally ten percent of your monthly discretionary income.
• For the IBR plan, your monthly loan payment is generally ten percent of your monthly discretionary income if you are a new borrower on or after July 1, 2014. If you are not a new borrower, the payment will generally be fifteen percent of your monthly discretionary income.
• For the ICR plan, your monthly loan payment is generally either twenty percent of your monthly discretionary income, or whatever you would pay on a repayment plan with a fixed payment over the course of twelve years, whichever is less.

Recertifying Your Loan

Once you are enrolled in an income-driven repayment plan and given a monthly payment amount, it is still possible that the amount of your monthly payment may change from time to time. Since your payment amount is dependent upon your income level and the size of your family, changes in either of these factors will result in changes in your monthly payment amount.

Under each plan, you are required to recertify your income and family size information annually, and changes will be calculated into your loan payment amount at that time. If you experience a significant lowering of your income or an increase in your family size, however, you should report that information immediately, since this information will lower your monthly payment amount. You do not have an obligation to report increases in income or decreases in family size except at the time of your annual recertification.

Please note if you are enrolled in a PAYE or IBR plan and your income reaches a level that does not qualify for these plans, you may still remain enrolled in your income-driven repayment plan, but your monthly payment will no longer be calculated on the basis of your income; instead it will be the amount that you would have to pay under the 10-year Standard Repayment Plan. 

The advantage of remaining enrolled in your PAYE or IBR plan at this point is that you still qualify for forgiveness of your balance after twenty or twenty-five years (depending upon your plan). If at any time your income level or family size changes again such that you are eligible for an income-driven payment amount, you will be allowed to return to making payments based on your discretionary income. So, once enrolled in one of these plans, it is worth considering remaining enrolled even if your income increases to the point at which an income-driven repayment plan is not necessary.

4. HOW LONG WILL YOU PAY?

One of the biggest advantages of income-driven repayment plans is the fact that, in all plans, the outstanding balance on your loan will be forgiven after 20 or 25 years of payments, depending upon your plan:

With the PAYE plan, your balance will be forgiven after 20 years of qualifying loan payments.

With the REPAYE plan, your balance will be forgiven after 20 years of qualifying loan payments, as long as the loans being repaid under this plan were for undergraduate study; If the loans being repaid under this plan were for graduate or professional study, then your balance will be forgiven after 25 years of qualifying loan payments.

With the IBR plan, your balance will be forgiven after 20 years of qualifying loan payments, if you’re a new borrower on or after July 1, 2014; If you are not a new borrower, then your balance will be forgiven after 25 years of qualifying loan payments. 

With the ICR plan, your balance will be forgiven after 25 years of qualifying loan payments.

Note that, in all cases, any amount of your loan that is forgiven may be considered income for the purposes of calculating your income tax obligation.

LEAVING YOUR INCOME-DRIVEN REPAYMENT PLAN

Once you are enrolled in an income-driven repayment plan, you may still opt out of the plan. If you have chosen a PAYE, REPAYE, or ICR plan, you can simply choose any other repayment plan for which you are eligible. If you have chosen the IBR plan, however, you will automatically be placed in the Standard Repayment Plan. Only after you have made at least one payment under the Standard Repayment Plan (or under a reduced-payment forbearance, if you are eligible) will you then be allowed to choose another repayment plan.

In all cases, you will not be considered eligible for an income-driven repayment plan if you are currently in default on your student loan. If you are in default and wish to be enrolled in an income-driven repayment plan, you must first get out of default status. For information on getting out of default, see our Student Loan Rehabilitation page, or contact us.