Income-driven repayment plans may be a good way to manage student loan debt. If the Loan Simulator indicates that you will do better with an income-driven repayment (IDR) plan, you still have plenty of options. The following options are available:
Revised Pay As You Earn Repayment (REPAYE) Plan
Participants pay 10% of their discretionary income (total household income less 150% of the poverty guideline for law size in your state) for up to 20 years if all loans are for undergraduate study and up to 25 years is at least some loans are for graduate work. Your payments are calculated each year based on your tax return and current law size. Based on income, the payments may exceed the payments of the 10 year repayment plan.
Pay As You Earn Repayment (PAYE) Plan
Participants likewise pay 10% of their discretionary income as adjusted annually. Household income is considered only if a joint return is filed with your spouse. The plan lasts for up to 20 years and never pays more than the 10 year plan.
Income-Based Repayment (IBR) Plan
This plan last 20 years if your loan was taken after 7/1/14 and 25 years if taken prior to that date. Your monthly payment is 10-15% of your discretionary income and will not exceed a 10-year payment plan. Your payments are calculated annually based on income and law size. Your spouse’s income will be considered if you file a joint return.
Income-Contingent Repayment (ICB) Plan
This plan lasts for up to 25 years. Your payment, which is calculated annually based on income and law size, will be the lesser of a) 20% of your discretionary income or b) the amount you would pay over a 12-year repayment plan based on your income. Your spouse’s income is considered only if you file a joint tax return or choose to repay your loan with your spouse’s loan. Your payment may exceed a 10-year plan.
Any balance remaining after the plan ends is forgiven, but you are responsible for paying income tax on the amount forgiven. Due to the extended payments, you will most likely pay more to repay your loan, but sometimes there really is no other option to avoid default. It is important under each of these programs that you recertify each year to determine your proper payment. If you fail to recertify, you can be removed from the program and placed in a standard repayment plan.
For more detailed information regarding each of these plans and the qualifications to enter into a plan, see Repaying Your Loans brochure. Under some limited circumstances, you may qualify for loan forgiveness, especially if you are a teacher, government worker or work for a non-profit organization and plan to work there for at least ten years. In the meantime, if you need assistance with any of these programs, contact us. We give second chances on Second Street.