Income Based Repayment Plans: Forgiveness for All

With over $1.5 trillion in student loan debt and an average debt of more than $32,000 per person, it is clear that America has a growing problem that it needs to tackle.  For many people (Millennials especially), going to get a higher education could seem like the biggest mistake of your life.

It can be a struggle trying to make your monthly payments when your job is not paying you enough to keep up with living expenses.  Luckily, there is a program that can help you pay a reasonable monthly amount and provide loan forgiveness.

Income Driven Repayment Plans offer monthly payment plans that are based on your income and family size.  It is the only option that is open to anyone regardless of their occupation.

Let's see if the Income-Driven Income plan could be the solution to your student loan debt problem.

Income-Driven Student Loan Forgiveness

Income based student loan forgiveness is for people who have high monthly loan payments in comparison to their monthly income.  There are 4 different payment plans that can help you bring your monthly payments down to a manageable amount.  

The plans are based on your income and family size and you don’t have to work in a particular field to qualify.  If your income is very low, you may even end up with $0 as your monthly payment.

Here are your options for repayment plans:

• Revised Pay As You Earn Repayment Plan (REPAYE)
• Pay As You Earn Repayment Plan (PAYE)
• Income-Based Repayment Plan (IBR)
• Income-Contingent Repayment Plan (ICR)

These plans vary based on who is eligible to apply and the percentage of your discretionary income that you are required to pay.  In addition, each plan has a different length of time that you are required to make payments in order for your loans to be forgiven.

Discretionary income is simply your income after deducting taxes, social security, and basic living expenses.  A simple way most people calculate this is to take their adjusted gross income (you can find this on your tax return) and subtract 150% of the poverty line for your family size.  

*For the Income Contingent Repayment (ICR) plan, you are only allowed to subtract 100% of the poverty level. 

Eligible Loans

This forgiveness program only applies for federal student loans.  Check the table below to see which loans qualify for each repayment plan.

Note: Subsidized and unsubsidized loans are eligible unless otherwise noted.  Private loans are not eligible.

It is useful to note that most plans will accept all federal loans as long as they are consolidated under a Direct Loan.  The IBR plan accepts FFEL loans without them having to be consolidated.  The ICR plan is the only plan that accepts PLUS loans made to parents and consolidated loans used to pay back a parent’s PLUS loan.

Qualifying Payments

To qualify for PAYE and IBR your payments under the plan must be less than the 10-year standard repayment plan.  Otherwise, you don’t qualify.  

Furthermore, for PAYE you must be a new borrower with no outstanding loan debt at the time you took out a loan (after September 30^th, 2007). You also need to have received a disbursement of a Direct Loan after September 30^th, 2011.

PAYE and IBR

For PAYE and IBR, if you do qualify at first and then your income increases such that payments are now more than the 10-year plan, your payments will be calculated based on the 10-year standard plan. However, you will still remain under the PAYE or IBR plan. 

REPAYE and ICR

 For REPAYE and ICR, as your income increases your payments may increase as well.  Be aware though that payments may even exceed what you would have to pay under the 10-year standard plan.

If at any time, you need to defer due to economic hardship, you can and that period will still count towards your total repayment period.  Same goes for if your payments ever drop to $0.  Furthermore, your payments may count even if you make them under certain other repayment plans.

** Capped at the 10-year Standard Repayment Plan amount

New Borrowers - For loans taken out after June 30th, 2014.  Must have no outstanding loan balances when you get your new loan.

Re-certifying

Payments under these income-driven repayment plans do not stay the same and may change as your income or your family size changes.  Every year, you must re-submit the income-driven application with your income and family size to re-certify even if there has been no change. 

You can resubmit or ask your loan provider to recalculate your payments at any time.  For instance, if you lose your job, you can send in your paperwork early and ask them to recalculate your payment.  If your salary increases, however, you do not have to tell them early.  You can wait until it is required that you re-certify.

If you don’t re-certify, you may lose your ability to pay on the income driven based plan and your loan interest may be added to your balance. The IBR, ICR, and PAYE plans do allow you to stay under the plan even if monthly payments are no longer based on income.

Any amount remaining after 20 or 25 years will be eligible to be forgiven. However, some people may find that they end up paying off their loans before then.  In which case, none of your loan amount would be eligible for forgiveness. 

To Apply

Things to Note:

• Any debt forgiven you have to pay taxes on
• Loans in default are not eligible for forgiveness programs (but are eligible for discharge programs).  They must be brought back to good standing first (rehabilitated or consolidated). Else-wise you could try student loan settlement or bankruptcy.
•  Check every year to make sure you still qualify, you don't want to get to the end and find out that you do not.
• You need to re-certify every year.

All in All

So are any of the income based repayment plans the right choice for you?  Maybe.  Just be sure to weigh all of your options.  Remember that while it may be nice to have the decreased monthly payments, in the long run you will probably end up paying more in interest.