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If you feel like your monthly student loan payments are too high, there’s a solution. The Department of Education offers income-driven repayment (IDR) plans to borrowers who qualify, and they can lower your payments to as little as 10% of your discretionary income.
But with four income-driven repayment plans available, choosing one can be a little overwhelming and confusing. We’re here to break it down for you so you can decide which student loan income driven repayment plan is best for you.
Your income-driven repayment plan options
1. Income-Based Repayment (IBR)
2. Pay As You Earn (PAYE)
3. Revised Pay As You Earn (REPAYE)
4. Income-Contingent Repayment (ICR)
Choosing an IDR plan and applying
1. Income-Based Repayment (IBR)
Income-Based Repayment (IBR) is an option regardless of when you received your loans. It’s similar to Pay As You Earn (PAYE) but offers more flexibility.
To qualify for IBR, your prospective payments must be lower than they’d be on the Standard Repayment Plan. You also must demonstrate financial need based on your income.
For example, if your student loan debt is higher than your annual discretionary income or is a significant portion of your annual income, you should qualify.
Eligible loans:
- Direct loans (both subsidized and unsubsidized)
- Direct PLUS loans made to graduate or professional students (loans made to parents are ineligible)
- Direct consolidation loans that didn’t repay PLUS loans made to parents
- Federal Stafford loans (both subsidized and unsubsidized)
- Federal Family Education Loan (FFEL) PLUS loans made to graduate or professional students (loans made to parents are ineligible)
- FFEL consolidation loans that didn’t repay PLUS loans made to parents
Eligible loans if consolidated:
- Federal Perkins loans (which are no longer available to new borrowers)
Payment amount: Generally, 10% or 15% of your discretionary income, depending on the date of the first loan. Your discretionary income is calculated as the difference between your adjusted gross income and 150% of the federal poverty guideline for your family size and state.
Use our income-based repayment calculator to estimate your monthly payment.
The 10% amount is for new borrowers who didn’t borrow from the Direct Loan or FFEL programs until July 1, 2014, or later. The 15% amount is for everyone who began borrowing before that date.
Repayment period: 20 to 25 years. It’s a 20-year term for new borrowers on or after July 1, 2014, and 25 years for everyone else.
Pros:
- It lowers your monthly payments.
- Your loans are eligible for forgiveness if you carry a balance after the repayment period is complete.
Cons:
- You can end up paying more in interest over time.
- If your loans are forgiven, the forgiven amount might be considered taxable income.