Repayment Plan Spotlight: Income Driven Repayment Plans

Here is a rundown on the Income Driven Repayment Plans (Income Based (IBR), Pay As You Earn (PAYE), Income Contingent (ICR)) to give you a better idea if it is the best option for you.

The Good:  This payment plan can often times lower your payment amount based on your income to as low as $0.00 a month.  In addition, the government will pay the interest for the three years for the IBR and PAYE plans.  In addition your payment is capped at a normal 10 year schedule so it will not try to “catch up” if you previously made lower payments.  Also at the end of the repayment time period (25 years for IBR & ICR and 20 years for PAYE), there is forgiveness.

The Bad: Since this plan will take over the 10 years due to the lower payments, you will usually pay more interest over the life of the loan.  In addition, if there is a forgiveness portion this income is taxable.  Also some mortgage companies look unfavorably on this plan since it changes year to year.

Who it is good for: People with low incomes and/or larger family sizes.  In addition people who are part of the Public Service Loan Forgiveness program since these are the main plans that qualify for PSLF.

Eligibility Requirements: For IBR & PAYE you have to demonstrate a partial financial hardship to qualify.  This is based on your Adjusted Gross Income and the poverty level for your family size and state.  Also Parent PLUS loans do not qualify for IBR & PAYE but do qualify for ICR if the loan is consolidated.

How do I apply:  You must fill out an application to apply.  The most efficient way to do so is to visit www.studentloans.gov.  You can also contact your servicer to be sent a paper application.  Remember no matter what you can do this for free.  Don’t let a company convince you to pay big bucks for something your servicer can help you do for no cost!