When we are going to school and working to obtain a college degree, the future is not always clear or guaranteed. Although we have plans of making good money and working to get ahead after graduation, life circumstances sometimes paint a different picture. If you find yourself in a position where your income is not what was expected after graduating or you have circumstances that prevent you from repaying your student debt, federal loans will have the option to pay back your loans based on your income. There are different options that get grouped under the “Income Driven Repayment” category. There are four major repayment plans revolving around the income you make: Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR). All of these programs have specific criteria that separate them and may make one more attractive to borrow than the others. There are also different eligibility guidelines to be aware of that would affect which programs you may be able to take advantage of. When you apply for Income Driven Repayment, you will typically be placed on the plan with the lowest resulting payment. Let’s explore some of the major points to each.
Pay As You Earn (PAYE)
This loan program is for direct loans only and requires that you provide proof of financial hardship. With this program, you will not be required to make a payment that is higher than 10% of your discretionary income. However, you must be aware that you are required to resubmit and recertify each year in order to maintain your income driven repayment status. If you do not recertify, you can be placed on a different repayment path with a higher monthly payment. Through this plan, you may also qualify to have your loan forgiven after 20 years of successful payments. However, you will likely pay more over the life of the loan due to building interest over time.
Revised Pay As You Earn (REPAYE)
Also for Direct loans, this program does not require financial hardship and will still be capped at 10% of your discretionary income. However, if you are a higher income earner, your loan payments could be higher than they would be on a Standard Repayment Program. You may also be eligible for loan forgiveness after a certain amount of time making regular payments on your loan under REPAYE. If you don’t make your payments on time, you may be entered into REPAYE Alternative, in which you can be charged capitalization on your loan interest that has accrued.
Income-Based Repayment (IBR)
This program is available to both Federal Family Education loans and Direct loans. Specifics on this repayment plan will vary depending on WHEN you obtained your loans. Repayment can be between 10-15% of your discretionary income and you may also be eligible for loan forgiveness sometime between 20-25 years of successful loan payments. With this program, you must show proof of financial hardship, and if you file jointly, your spouse’s income and student loan info will also be used to determine your payment amount.
Income-Contingent Repayment (ICR)
This program can be used by borrowers with Direct loans only. You can also use this loan if you had a parent plus loan that was consolidated into a direct loan. To take advantage of this loan program, you do not need to prove financial hardship and the payment amount will be either 20% of your discretionary income or payments spread out over the course of 12 years. Again, this program may qualify for forgiveness after 25 years.
To apply for these programs or learn more specifics, visit Studentloans.gov to get started. The best way to attack your student loans is to get educated and serious about payback. Click Here for further information on Student Loan Debt Relief.