What are my options?
If you are looking for a more affordable path to free yourself of student loan debt, an option you should take a hard look at is Income-Based Repayment Plans or IBR.
Having thousands of dollars of student loan debt and a massive monthly payment can be a huge burden especially on recent graduates starting salary. IBR is a type of program that sets your monthly payment amount based on your current income levels. Those with high student loan balances and unaffordable monthly payments compared to their yearly income can really see drastic changes in just how much their monthly obligation is and provide much-needed relief.
4 Types of Income-Driven Repayment Options
IBR (income-based repayment) often gets lumped in as a general term for various Income-Driven Repayment programs or IDR plans. There are four different IDR plans offered by the Department of Education and Income-Based Repayment is one of the most widely used of the bunch. Here we briefly explain each and go more in-depth into IBR plans as they are what most people with student loan debt will qualify for.
1. Income-Based Repayment (IBR)
If you are looking for a more affordable path to manage your student loan debt, an option you should take a hard look at is Income-Based Repayment Plans or IBR.
**Lowering your monthly payment may require you to pay more interest over a longer period.
2. Income-Contingent Repayment (ICR)
This is solely for those with Parent PLUS Student Loans. With this program you have to consolidate your Parent PLUS loans and your monthly payments will be capped at 20% of your discretionary income. Borrowers who qualify will get a term up to 25 years.
3. Pay As You Earn (PAYE)
This program is for graduates who took out loans prior to October 2007 and again after October 2011. If you have direct loans through the federal government that meets these requirements this program helps cap monthly student debt obligations at 10% of income. The new monthly payment must not exceed your Standard 10 Year plan and has a 20-year forgiveness term where any debt left over after the term is forgiven.
*The DOE's student loan consolidation programs, including its loan forgiveness programs, have specific qualifications that must be met in order to obtain a consolidation or forgiveness of student loans. These qualifications requirements include but are not limited to qualifications based on Client's income, other financial factors, types of outstanding loans and the area of Client's current employment. All decisions regarding loan consolidations and loan forgiveness, including the amounts of monthly payments, are subject to DOE approval and are determined solely by the DOE. Any forgiveness of a loan may be treated as taxable income for income tax purposes and any forgiveness of a loan greater than $600 may be reportable as taxable income to state and/or federal governments. You should discuss your personal tax situation, including any potential tax consequences of loan forgiveness, with a tax professional.
4. Revised Pay As You Earn (REPAYE)
This is pretty much the same as Pay As You Earn but is for those that don’t meet the requirements of the above plan. Same as PAYE, monthly payments are capped at 10% of discretionary income, but plans are usually 25-year terms.
What is IBR?
IBR is similar to other IDR programs in that it can assists graduates and those with high monthly student debt obligations get into a more affordable payment plan under the Standard Repayment Plan based on their current income levels.
IDR plans lower monthly payments
Obviously, when you have high student debt balances, your monthly obligations to those loans are going to be high as well. Even under the Standard Repayment Plan of 10 years, your monthly payments can be extremely unaffordable compared to the money you bring in every month. With lower incomes, even payments that seem more affordable become burdensome on individual and family financial situations.
This is where IDR plans are best utilized. Instead of monthly payments being set based on your overall debt owed, they are tied to your income level. These plans were implemented to make payments affordable based on income as well as family size (both factors that are weighed when qualifying for the program).
**Lowering your monthly payment may require you to pay more interest over a longer period.
Qualifying for Income-Based Repayment Plans
Borrowers that have student loans after 2014 can receive forgiveness* under these plans after 20 years and the Income-Based Repayment allows your monthly loan amount to be capped at 10%. While anything prior to 2014 is set at 25 years and 15%.
Essentially if you have payments currently under the Standard Repayment plan and getting into an IBR based program would make them higher, you don’t qualify. IBR is intended to lower monthly obligations and get people out of unaffordable Standard Repayment Plans.
The following Federal Loans qualify for IBR plans:
- Direct Subsidized and Unsubsidized Loans
- Direct Graduate PLUS loans
- FFEL Consolidation Loans
- Direct Consolidation Loans
*The DOE's student loan consolidation programs, including its loan forgiveness programs, have specific qualifications that must be met in order to obtain a consolidation or forgiveness of student loans. These qualifications requirements include but are not limited to qualifications based on Client's income, other financial factors, types of outstanding loans and the area of Client's current employment. All decisions regarding loan consolidations and loan forgiveness, including the amounts of monthly payments, are subject to DOE approval and are determined solely by the DOE. Any forgiveness of a loan may be treated as taxable income for income tax purposes and any forgiveness of a loan greater than $600 may be reportable as taxable income to state and/or federal governments. You should discuss your personal tax situation, including any potential tax consequences of loan forgiveness, with a tax professional.
Eligibility
As you read above there are A LOT of programs for all types of situations. Eligibility for each program is different with various requirements or qualifications for each. Some programs are based on where you work or what you do for a living, others are based on your income level and family size, and some are just contingent on your willingness to exchange forgiveness for work in another area of the country. Just like doing your taxes and understanding all the IRS tax laws in both your state and federal level, it is always best to consult a professional that has your best interest in mind. That is what we at Direct Account Management are here for! We have experts that are well versed in every single student loan program and can advise you on the best path, with the lowest payment, and easiest route to adequately managing your student loan debt. Call us anytime to speak with one of our professionals or fill out the easy online form!