How is the Income Sensitive Plan Calculated?

The Income-Sensitive Repayment plan has generally fallen by the wayside.  It used to be the alternative to the Income-Contingent Repayment plan but with the introduction of the IBR and PAYE plans, it has lost popularity.

The first things to remember about the plan is it is only valid for FFELP loans.  It has to be a minimum of 4% of your income or the total interest that has accrued whichever amount is higher.  It can be between 4% and 25% of the borrowers income as long as this percentage meets the interest accrued threshold.

Borrowers must reapply for the ISR each year.  This payment plan is limited to a ten year repayment term.  Since the payment is less than the standard plan it will usually cause a significant rise in the installment amount.

Naturally this will also increase the total amount of paid interest of the life of the loan.  This repayment plan is only available for a period of five years and as mentioned above the remainder of the payment must be made up over the remaining amount of the term.

As a result this plan is only used in certain circumstances while usually other Income-Driven schedules like the IBR or Pay As You Earn as far more efficient.