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HomeArticlesHow to Apply for Income Driven Repayment Plan: Types, Pros and Cons

How to Apply for Income Driven Repayment Plan: Types, Pros and Cons

How to Apply for Income Driven Repayment Plan!

Do you have a limited budget? Do you already know that you will be required to make monthly payments you cannot afford when the nationwide moratorium on student loan installments expires? Do you desire a solution that will result in manageable payments and perhaps even student loan forgiveness?

Then you should certainly sign up for an income-driven repayment plan! All federal student loan debtors are eligible for these repayment plans, which base your monthly payment amount on your income level.

In other words, you are not required to pay hundreds of dollars toward your student loan balance each month if your income at work is insufficient to do so. Your monthly payment could be as low as $0 on an income-driven repayment plan!

Is this the kind of repayment plan you require? If so, we’re going to assist you in this blog post:

  • Review the advantages and disadvantages of income-driven repayment options.
  • Learn how to choose the best income-driven repayment plan for you by understanding the distinctions between the four available options.
  • Discover the simple application process for an income-driven repayment plan.

Let’s start by talking about how income-driven repayment plans differ from other student loan repayment programs in more detail.

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What is Income-driven Repayment Plan?

For borrowers of federal student loans, an income-driven repayment option is available. These income-driven repayment plans are often intended for borrowers of student loans who are unable to make fixed installments based merely on the amount of their outstanding debt.

Depending on the repayment option you select, an income-driven repayment plan will cap your monthly student loan payments at 10–20% of your discretionary income.

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What is Discretionary income?

Your remaining income after paying for necessities like rent, food, and taxes is referred to as discretionary income.

What will you be Required to pay under an Income-driven Repayment Plan?

As was previously noted, an income-driven repayment plan bases the amount of your monthly student loan payments on your family size and discretionary income.

To determine how much your potential monthly payment might be, use the Loan Simulator provided by the Department of Education. On an income-driven repayment plan, though, you can anticipate paying between $0 and $300 per month if you’re on a tight budget.

How to Apply for Income Driven Repayment

Who is Eligible for Income-driven Repayment Plans?

Regardless of when you took out your loans, all federal student loan borrowers are qualified for income-driven repayment programs.

Private student loan borrowers are not permitted to participate in the income-driven repayment plans we outline in this blog article. You must consider repayment choices with your private lender if your current private student loan payments are out of your price range.

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Pros and Cons of Income-Driven Repayment Plan

Many borrowers of federal student loans may find income-driven repayment programs to be an excellent choice. However, that does not imply that everyone should choose them.

The main advantages and disadvantages of income-driven repayment plans are listed below to help you determine if selecting one of these repayment plans is the best course of action for you.

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how to apply for income driven repayment

Advantages of Income-driven Repayment Plans

  1. You can afford to pay what you owe because your monthly payment is determined by your salary, the size of your family, and the loan total. That implies that your monthly payment may be as little as $0.
  2. Since you’ll be able to make modest installments, you’ll be less likely to miss payments and run the risk of student loan default.
  3. Once you’ve made consistent payments for 20–25 years, your student loan balance is erased.

Disadvantages of Income-driven Repayment Scheme

  1. In the long term, you can end up paying a higher interest rate on your student loan.
  2. The amount of debt that is forgiven at the conclusion of your repayment period may be subject to income tax.
  3. If you’re married, the amount you must pay each month will take into account your spouse’s income.

Make sure you select the best plan for your financial position because your monthly payment may still be more than you can afford.

The 4 Income-Driven Repayment Plans: A Summary

Borrowers of federal student loans have the choice of selecting one of four income-driven repayment programs right now, according to the Department of Federal Student Aid:

  1. Income-Based Repayment (IBR)
  2. Revised Pay As You Earn (REPAYE)
  3. Pay As You Earn (PAYE)
  4. Income-Contingent Repayment (ICR)

The eligibility criteria, terms, and conditions vary for each plan. Let’s examine the specifics of each one to get you thinking about which one would be the best for you.

Income-Based Repayment (IBR)

After 20 to 25 years of on-time payments under the Income-Based Repayment Plan, you’ll be eligible for student loan forgiveness.

IBR is available for borrowers with:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents
  • Subsidized Federal Stafford Loans (from the FFEL Program)
  • Unsubsidized Federal Stafford Loans (from the FFEL Program)
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents

Revised Pay As You Earn (REPAYE)

Your monthly payment under the REPAYE Repayment Plan would be 10% of your monthly discretionary income.

For undergraduate student loans and graduate student loans, the REPAYE Repayment Plan has a 20-year repayment period and a 25-year repayment period, respectively. Your remaining loan debt becomes qualified for student loan forgiveness at the conclusion of that payback cycle.

Only borrowers who have the following qualify for the REPAYE Plan:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents

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Pay As You Earn (PAYE)

The Pay As You Earn (PAYE) Repayment Plan and the REPAYE Repayment Plan are nearly identical.

Your monthly student loan payment is limited by the PAYE Repayment Plan to 10% of your discretionary income. However, only borrowers who have proven they cannot afford to make monthly payments under the Standard Repayment Plan are eligible for this income-driven repayment plan.

The PAYE Repayment Plan has a 20-year repayment duration. Your remaining loan debt becomes qualified for student loan forgiveness at the conclusion of that payback cycle.

Borrowers that have the following only qualify for the PAYE Repayment Plan:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents

Income-Contingent Repayment (ICR)

Your monthly payment under the income-based repayment is capped at the lesser of the two amounts listed below:

  • 20% of your income at your choice
    the sum of a set payment spread out over 12 years, with your salary taking into account.
  • The Income-Contingent Repayment Plan has a 25-year repayment duration.
  • The remaining sum becomes eligible for student loan forgiveness at the conclusion of that payback cycle.

ICR Plan participants must have one of the following:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents
  • Direct Consolidation Loans that repaid PLUS loans made to parents

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how to apply for income driven repayment

How to Apply for Income Driven Repayment Plan

You must submit an application to the Federal Student Aid office of the Department of Education in order to be considered for an income-driven repayment plan.

You’ll require the following supplies to complete your application:

  1. The social security number you have
  2. Your license plate number
  3. How much you borrowed overall in student loans
  4. The name of the school or schools you enrolled in using loan money
  5. The days you were enrolled in school
  6. Your most recent income proof
  7. If recommended, information about your spouse’s earnings

What to do after Applying?

You must recertify your income annually in order to continue to be eligible for income-driven repayment options. So, after submitting an application and receiving approval, schedule a reminder for this on your calendar. You can shift to a different income-driven repayment plan if your income changes or if you are no longer eligible under your current plan’s eligibility standards.

Frequently Asked Questions

Can I Apply for the Income-driven Repayment Plan every Year?

Yes. However, you can provide your information to your loan servicer and they will recalculate your payment if your situation changes before your yearly deadline to recertify—for instance, if your income drops or you lose your job.

Who is Eligible for an Income-driven Repayment Plan?

A borrower must prove a "partial financial hardship" in order to be eligible for IBR. How much a borrower can pay will be determined by a formula that takes into account family size, state of residence, and adjusted gross income (AGI).

How long does it take to have an Income-driven Repayment Plan Approved?

Your IDR application should typically be processed within two weeks.

What distinguishes the IBR and IDR?

Keep in mind that IBR is a particular kind of plan, whereas IDR is the general word for these programs. So what exactly is IBR? Your monthly student loan payments are determined by an IBR plan depending on your income and the date you became a new borrower.

Conclusion

Making your student loan payments more manageable is a fantastic approach to use income-driven repayment options. However, each plan has unique eligibility restrictions, benefits, and drawbacks. Therefore, it’s crucial that you do your research and select the repayment option that is ideal for you. With the knowledge we’ve provided in this blog post, we hope you can achieve just that.

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