If you want to make your student loan debt more manageable, an income-driven repayment plan might be a viable option. It works by reducing your monthly student loan repayment amount. The federal government offers these repayment plans which are based on your family size and income. It’s usually the right move to switch to one of these plans if:

 

  • You have low income, but high debt
  • You qualify for the Public Service Loan Forgiveness program
  • You are concerned about your defaulting on your student loans and/or can’t afford your payments

Moving to an income-driven repayment plan can lower your payments to as low as 10 percent of your discretionary income. That can be a much-needed break from your current monthly payments!

Types of Income-Driven Repayment Plans

There are four types of income-driven repayment plans to choose from. They all share some similarities like capping your payments to 10 and 20 percent of your discretionary income. They also all will forgive any remaining loan balance after 20 or 25 years of payments. Here’s more information about each of these plans:

Income-Based Repayment (IBR)

This is the most popular plan, accounting for almost 40 percent of borrowers who are on income-drive repayment plans. It limits your monthly payments to 10 percent of your discretionary income. FFEL Program and Direct Loans are both eligible to be moved to this student loan repayment plan.

Pay As You Earn (PAYE)

This plan was released in 2012, making it one of the newer repayment plan options. It’s a lot like IBR except it has stricter requirements. You must demonstrate financial need and be a more recent borrower to qualify. Your potential payments must also be smaller on the PAYE plan over the Standard Repayment plan.

Revised Pay As You Earn (REPAYE)

The newest income-driven repayment plan, Revised Pay As You Earn was made available in December 2015. It has many similarities between it and the PAYE plan. The biggest difference is that you don’t have to demonstrate financial need and it doesn’t matter when your first student loan was taken out.

Income-Contingent Repayment (ICR)

The Income-Contingent Repayment plan doesn’t have an income eligibility requirement. You can also include Parent PLUS loans after they have been consolidated into a Direct Loan. This option is best if you don’t qualify for the other options, yet want to reduce your monthly payments.

Picking the Right Plan

Here are some guidelines to follow on what plan to choose based on your situation below.

 

Plan                                                                            Choose if:

 

Income-Based Repayment                                      Have FFLEP loans

Don’t meet qualifications for PAYE

 

Pay As You Earn                                                       Married and have two incomes

Have graduate loans

Your earning potentail is low

Revised Pay As You Earn                                        Your earning potential is high

Not married

Have no graduate loans

 

Income-Contingent Repayment                              Want to include Parent Plus loans

Want a slight payment reduction

Applying for an Income-Driven Repayment Plan

To apply for an income-driven repayment plan you can contact your student loan servicer or visit studentloans.gov. You’ll need to include information about your family size and your most recent transcript or federal income tax return.

Want more help?

Do you have more questions about income-driven repayment plans or something else related to student loans? Give us a call at 888-706-0440 for a free consultation today.

If you have questions about your student loans, call us at Student Loan Medix for a free, no obligation consultation.  We are a division of Michigan Consumer Credit Lawyers, a Michigan based law firm.  You can reach us at (480) 676-2889 or email us at tracey@studentloanmedix.com.

Gary Nitzkin

Gary Nitzkin, Esq.
Licensed in Michigan only