Income-Driven Student Loan Repayment Plans

Students and recent graduates are encouraged to explore their student loan repayment options as soon as possible to ensure their loans are repaid in a timely manner, and that they find a plan that matches their financial situation.

An income based student loan repayment plan may be suitable for graduates who do not have enough income to pay a full loan repayment each month. In the case of an income based repayment plan student loans are repaid gradually, and low monthly payments are established that work with students and graduates’ incomes. While other repayment options are available, students and graduates should consider income-based plans as a possible choice.

The following sections explain what an income driven student loan repayment does for loan borrowers and why it may be a good option for some borrowers. Students and graduates with significant student loans hoping to stretch their budgets while continuing to reduce their loan payments should review the information in the sections below.

What is an income based student loan repayment plan?

Each federal loan income based repayment plan is designed with the borrower’s financial situation in mind. By decreasing monthly payment amounts, income based student loan repayment plans make student debt more manageable for qualifying borrowers. The following explains how monthly payments are calculated for each type of repayment plan:

  • REPAYE plan. Monthly payments may be 10 percent of total discretionary income.
  • PAYE plan. Monthly payments may not exceed the 10-year standard repayment plan amount.
  • IBR plan. Monthly payments may be between 10 and 15 percent of total discretionary income.
  • ICR plan. Monthly payments may be the lesser of 20 percent of total discretionary income or monthly payments under 12-year fixed payment plans based on income.

Typically, repayment amounts are based on incomes, family sizes and the status of borrowers (i.e., whether they have a clear borrowing history or not). Students and graduates can estimate payment amounts under income based student loan repayment plans by using the repayment estimator provided by the U.S. Department of Education (ED).

Related Article: Student Loan Interest Rates

When deciding which income-based loan repayment plan provides the best monthly payment options for them, students and graduates are advised to determine how long their loans will be in repayment under each plan in addition to the value of each monthly payment. For most, income based repayment plan student loans will be in repayment for up to 20 or 25 years. At the end of the repayment period, which includes periods of deferment and economic hardship, unpaid loan balances are forgiven. Loan services will inform borrowers when they are close to qualifying for loan forgiveness.

Note: Students and graduates should expect their monthly payments to change with their income and/or family size.

How to Setup or Change a Repayment Plan

Students and recent graduates must apply for income based student loan repayment plans and recertify their income and family size annually to receive the benefits of those types of plans. IDR student loans are not automatically granted to qualifying borrowers and, instead, must be requested and assessed by based on need and eligibility for other repayment plans. However, specific eligibility criteria applies to income driven student loan repayment plan applicants. A list of the qualifying criteria applicants must meet for each type of income-based plan is provided below:

  • REPAYE plan. All borrowers with federal student loans may make payments under this plan.
  • PAYE and IBR plans. To qualify, borrowers must be required to pay more under standard repayment plans (with 10-year repayment periods) and be new borrowers.
  • ICR plan. All borrowers with federal student loans may make payments under this plan. Though, this plan is the only income-based student loan repayment plan available to PLUS loan borrowers.

Additionally, no borrowers may receive a student loan income driven repayment plan if they are in default on federal loans, currently receive the lowest monthly payments possible or only have PLUS loans they borrowed as a parent or guardian. Once borrowers have determined their eligibility, they may apply for the repayment plan. The steps involved in applying for an income-driven student loan repayment plan are as follows

  1. Create an FSA ID or log in to FSA using an existing account.
  2. Complete the online application for income-based loan repayment requests by the application deadline.
  3. Endorse the request form and submit it electronically to FSA.

Applicants should hear back from FSA regarding their request via mail. The entire application should take approximately 10 minutes to complete and requires no application fee for processing. Applicants should be prepared to present the following types of information during the application process:

  • FSA ID
  • Social Security Number (SSN)
  • Full name of borrower
  • Permanent address
  • Email address
  • Phone number
  • Tax information
  • Adjusted gross income
  • Marital status
  • Household size

This information requested from applicants may differ slightly for the recertification process. For instance, applicants should not need to reenter personal information such as their address or phone number unless it has changed since the previous year. However, applicants should indicate changes in income and household size as well as their preference for a recalculation of their monthly payment amount. Under the REPAYE income based student loan repayment plan, failure to recertify income and family size by the annual deadline may result in termination from the plan whereas the PAYE, IBR and ICR plans recalculate monthly payments based on the amount borrowers would have paid under the standard plan. Additionally, all unpaid interest is capitalized if borrowers do not recertify, which increases the total cost of the loans.

If loan borrowers are enrolled in another type of repayment plan and would like to transfer to an income-driven plan or a different plan of the same type, then they may do so online by completing the IDR plan request form.

Note: Some loans may need to be consolidated to be eligible for repayment under income-based student loan repayment plans such as subsidized and unsubsidized federal loans, FFEL PLUS loans and federal Perkins loans.  Though, only direct loans may be repaid under REPAYE, PAYE and ICR plans.

Related Article: Direct Subsidized Loans

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