As discussed in a previous blog post, federal student loans are eligible for a number of income-driven repayment plans. These plans can lower initial payments, ease the burden of interest, and even forgive all outstanding debt after a certain period of time.
The four income-driven plans that most federal student loans qualify for are the ICR, IBR, PAYE, and REPAYE plans. These plans set a monthly income-based payment amount, which is unaffected by the balance of the loan. After a certain number of years, called the Repayment Period, any remaining loan balance is forgiven. At that point, the forgiven balance is taxed as income.
To learn more about each income-based repayment plan, click on their name below.
[expand title=\”Income-Contingent Repayment Plan (ICR)\” trigclass=\”noarrow\”]This is the easiest income-driven repayment plan to qualify for, but often provides the least benefit. In this plan, the payment amount is set to the lesser of 20% of discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted for income. Any borrower with eligible federal student loans may make payments under this plan.
Repayment Period: 25 years[/expand]
[expand title=\”Income-Based Repayment Plan (IBR)\” trigclass=\”noarrow\”]
To qualify for the IBR plan, the payment you would be required to make must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period. If the payment is more than this amount, you won’t benefit from using an income-based repayment plan. The payment amount is set to 10% of discretionary income if you are a new borrower on or after July 1, 2014, or 15% otherwise.* This monthly payment will never be more than the 10-year Standard Plan amount.
Repayment Period: 20 years if you are a new borrower on or after July 1, 2014, otherwise 25 years
*For the IBR plan, you are a new borrower if you had no outstanding Direct or FEEL Loans when you received a Direct Loan on or after July 1, 2014.[/expand]
[expand title=\”Pay As You Earn Repayment Plan (PAYE)\” trigclass=\”noarrow\”]
To qualify for this plan you must meet the same eligibility requirement as the IBR plan, must be a new borrower as of October 1, 2007, and must have received a disbursement of a Direct Loan on or after October 1, 2011. Payments are set to 10% of your discretionary income, and are capped by the 10-year Standard Repayment Amount.
Repayment Period: 20 years[/expand]
[expand title=\”Revised Pay As You Earn Repayment Plan (REPAYE)\” trigclass=\”noarrow\”]
The newest income-based repayment plan, REPAYE, is often the most beneficial. Any borrower with eligible federal student loans may make payments under this plan, and the payment amount is set to 10% of your discretionary income. This makes REPAYE a good option for those seeking loan forgiveness under the PSLF program.
Repayment Period: 20 years if all loans you are repaying were for undergraduate study, otherwise 25 years[/expand]
To determine which repayment plan is best for you, or if you have any questions about a specific plan, contact your loan servicer.
To apply for an income-driven repayment plan, you must submit an Income-Driven Repayment Plan Request. This can be obtained from your loan servicer, or submitted online at StudentLoans.gov.
Public Service Loan Forgiveness Program (PSLF)
A final consideration concerning repayment plans is the Public Service Loan Forgiveness Program. PSLF only applies to full-time employees of certain public service employers, but can forgive all remaining loan balance in as little as 10 years. Unlike the other income-driven repayment plans, any balance forgiven under PSLF is not taxed as income.
This program stipulates that any qualified employee who has made 120 qualified, monthly payments toward a qualifying loan will have the remining balance on their eligible loans forgiven tax-free. These 120 payments must be under one of the above plans, the 10-year Standard Repayment Plan, or a similar Direct Loan repayment plan with a monthly payment at least equal to those of the 10-year Standard Plan.
Public service sectors that qualify for this program include military, public schools, any federal, state, local, or tribal agency, law enforcement, public safety, and not-for-profit tax-exempt 501(c)(3) organizations. For a comprehensive list of government agencies and departments, visit USA.gov.