Income-Driven Repayment (IDR)

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Income Driven Repayment

Many student loan borrowers are going to have to restructure their repayment plans this year. The Department of Education offers many different loan repayment options to help make payments more manageable. If this includes you, one of the most popular repayment programs to apply for is Income-Based Repayment.

 

Benefits of Income-Driven Repayment 

The federal government offers four income-driven repayment, or IDR, plans that can lower your monthly bills based on your income and family size. Payments could even be $0 if you’re unemployed or earn less than 150% or 225% of the poverty threshold, depending on the plan you choose. Switching to one of these plans is usually right for you in the following instances:

  • You can’t afford your current payments and want to avoid late payments and student loan default.
  • You’ll qualify for Public Service Loan Forgiveness.
  • You have high student loan debt and a low income or are unemployed.

 

Which Income-Driven Repayment Plan is best for you?

 All income-driven repayment plans share some similarities: Each caps payments to between 10% and 20% of your discretionary income and forgives your remaining loan balance after 20 or 25 years of payments. The four plans are:

  • Saving on a Valuable Education (SAVE), which replaced the REPAYE plan.
  • Income-Based Repayment (IBR).
  • Pay As You Earn (PAYE).
  • Income-Contingent Repayment (ICR).

 

What about the New SAVE Plan?  

There’s a new IDR plan, SAVE, which has replaced the formerly available REPAYE plan. SAVE’s final rules illustrate the most generous federal student loan repayment option yet:

  • Borrowers earning less than about $32,800 individually, or less than $67,500 for a family of four, would see $0 monthly bills.
  • Most other borrowers would see their payments cut by at least half.
  • Students who borrow less than $12,000 would see their remaining balances wiped away after 10 years of payments, instead of 20 to 25 years.

 

Qualifying Loan Types

Eligibility for Income Based Repayment depends on which loans you have taken out for your education, and when they were taken out. The following Federal Student Loans from the Direct Loan and Federal Family Education Loan (FFEL) Programs are the ones that qualify for application:

  • Direct PLUS Loans (Graduate and Professional Students).
  • Direct Consolidation Loans without PLUS Loans that were made directly to parents and not just as cosigners.
  • Direct Subsidized Loans.
  • Direct Unsubsidized Loans.
  • FFEL PLUS Loans (Graduate and Professional Students).
  • FFEL Consolidation Loans without PLUS Loans that were made directly to parents and not just as cosigners.

If you do not have one of these loan types, you may still be eligible for the IBR by consolidating your federal student loans into the Direct Loan program.

 

Forgiveness At the End Of Term

Fourth is the 20-year forgiveness for new borrowers that took their loans out after July 1st 2014, or 25 years if the loans were taken before that date. The lifetime of an Income Based Repayment Loan is considered to be no more than 25 years. If over the lifetime of this loan, you make 300 qualified payments and the loan is still not completely paid off, any remaining loan amount will be forgiven and legally discharged. However, this discharged amount is considered taxable and must be paid for the year it was forgiven; i.e. a loan discharged in 2013 must be paid with other 2013 Income Taxes due in 2014.

 

Public Sector 120 Months Forgiveness

Finally, there is the student loan forgiveness for public service employees. If you make 120 on time, full monthly payments under an Income-Based Repayment program while employed full time with a public service organization, you may apply to have the remaining balance of your loan or loans forgiven and legally discharged. This could save up to another 15 years of payments.

 

Annual Recalculation of Payment

Interested applicants need to keep in mind that although there is no minimum payment with an Income Based Repayment Loan, the amount is recalculated every year. In addition to the criteria listed in the first benefit, family size and changes to income (including a spouse) will alter the required amount. This annual recalculation in the monthly payment depends on when the loan program was started. Income increases, a new spouse, having a child or getting laid off will definitely change your monthly payment either up or down. The good news is that if your income rises dramatically, you can change your repayment plan into a standard repayment at any time you choose.

 

Get Started Today!

While the Income Based Repayment Program is not an easy one to apply and qualify for, it certainly beats defaulting on your responsibilities and having that black mark on your credit report for many years to come. The benefits under this Income-Based Repayment program are extensive and designed specifically to help individuals and families in financial need while ensuring that the Federal Student Loan Program stays healthy and available for future students.

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