Income Driven Repayment of Student Loans

Income-based repayment is popular, but there are other options

If you are struggling to make the monthly payments on your student loans, consider an income driven repayment plan for your student loans. These programs should make your federal student loan payments more affordable, according to the Federal Student Aid Office of the U.S. Department of Education:Income Driven Repayment of Student Loans -- Lee Legal -- DC VA MD

Income-driven repayment (IDR) plans are designed to make your student loan debt more manageable by reducing your monthly payment amount. If you need to make lower monthly payments or if your outstanding federal student loan debt represents a significant portion of your annual income, one of the following income-driven plans may be right for you.

Income-Driven Repayment Plan Request
via StudentLoans.gov

Most federal Direct Loans and Stafford Loans are eligible. But PLUS loans are not, and neither are FFEL loans. Whether you have consolidated your loans often makes a big difference. If you seek a lower monthly payment on your federal student loans, consider one of the following programs.

IBR: Income-Based Repayment

The most popular income-driven repayment program is the Income-Based Repayment, or IBR. Your monthly earnings will determine your monthly student loan payment. And the feds can demand only 10 to 15 percent of your discretionary income. How much you owe is not a consideration. Some borrowers have a repayment plan of zero dollars monthly, based on lack of discretionary income. Monthly payment amounts are recalculated annually, and you must recertify your income every 12 months.

IBR is popular for a reason. First, IBR offers interest forgiveness for up to three years. Second, IBR guarantees forgiveness after 20 to 25 years of payments. If a student borrower makes 300 monthly payments, the remaining loan balance is forgiven, although any forgiven amounts may be taxable. Still, for many borrowers loan forgiveness after just two and a half decades of repayment represents a big boost in disposable income.

PAYE and REPAYE: Pay As You Earn Repayment

The Pay-As-You-Earn (PAYE) plan has been around for a while. But in 2015, the plan was revised (REPAYE) to include more borrowers. Both plans limit monthly payments to 10 to 15 percent of your discretionary income. Loan forgiveness becomes available after 20 years. Your discretionary income is calculated using your adjusted gross income minus 150 percent of the state poverty guideline for your family size.

These programs can reduce both your interest and your monthly payments better than IBR. But some loans must have disbursed after Oct. 1, 2011. And these programs are more difficult to qualify for in other ways as well. Like IBR, PAYE and REPAYE also require annual recertification.

ICR: Income-Contingent Repayment

ICR is the oldest of the income-driven repayment programs. Unlike with IBR and PAYE, your income doesn’t affect your qualification for income-contingent repayment. Necessary expenses are actually more important than income in ICR plans. Secured and priority claims take precedence.

ICR is most useful as a student loan repayment plan for those who don’t qualify for IBR, PAYE, or REPAYE. While those programs cap monthly payments at 10 to 15 percent of monthly income, ICR caps at 20 percent. Nonetheless, depending on the amount of your loans, ICR could save you a lot over the repayment period.

You can enroll in these programs yourself

You don’t need an attorney or some “service” to enroll in one of these programs. Call your student loan servicer and request income-driven repayment. You will need to complete several forms and provide documentation, but you can do these things yourself. In fact, involving a third party often unnecessarily complicates the process.

If student loans are just one component of your overall debt load, on the other hand, you may want to consider bankruptcy. Under Chapter 13 bankruptcy protection, you can make reduced monthly student loan payments for up to five years.

But if student loans are your main problem, it is well worth your time to call your servicer. Call them up and find out what your options may be for income driven repayment of student loans.

About Brian V. Lee 502 Articles
Brian V. Lee provides bankruptcy, foreclosure defense, business turnaround, and litigation services to clients in the District of Columbia, Virginia, and Maryland. Brian was the Washington, D.C. state chair of the National Association of Consumer Bankruptcy Attorneys from 2016 to 2018.