Income-Driven Student Loan Repayment Plans
There is a ton of focus on getting into and paying for college. However, after those four (hopefully!) years, young adults must often face the task of not only finding employment but also repaying college student loans. There are many different ways to tackle student loan repayment. Let’s take a look at one option available: Income-Driven Repayment Plans.
Income-Driven Repayment Plans
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What are Income-Driven Repayment Plans?
Income-driven repayment plans are a set of repayment plans offered by the U.S. Department of Education for federal student loans. These plans are designed to help borrowers manage their student loan debt by adjusting their monthly payments based on their income and family size. The four main types of income-driven repayment plans are:
Income-Based Repayment (IBR) Plan
Income-Based Repayment (IBR) Plan: Under this plan, borrowers' monthly payments are capped at 10% or 15% of their discretionary income, depending on when they first borrowed. After 20 or 25 years of payments, any remaining balance is forgiven.
Pay As You Earn (PAYE) Plan
Pay As You Earn (PAYE) Plan: Under this plan, borrowers' monthly payments are capped at 10% of their discretionary income, and any remaining balance is forgiven after 20 years of payments.
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Revised Pay As You Earn (REPAYE) Plan
Revised Pay As You Earn (REPAYE) Plan: Under this plan, borrowers' monthly payments are capped at 10% of their discretionary income, regardless of when they first borrowed. Any remaining balance is forgiven after 20 or 25 years of payments.
Income-Contingent Repayment (ICR) Plan
Income-Contingent Repayment (ICR) Plan: Under this plan, borrowers' monthly payments are the lesser of 20% of their discretionary income or what they would pay on a 12-year fixed repayment plan. Any remaining balance is forgiven after 25 years of payments.
How to Qualify for Income-Driven Repayment Plans
To qualify for income-driven repayment plans, borrowers must have eligible federal student loans and demonstrate a partial financial hardship. Borrowers must also recertify their income and family size annually to ensure that their monthly payments are adjusted accordingly. It is important to note that while income-driven repayment plans can make monthly payments more manageable, they can also result in paying more in interest over the life of the loan compared to other repayment plans.
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