Student loan payments can be cheaper
Image via Pixabay
Outstanding student loan debt in the U.S currently stands at almost $1.5 trillion. Repaying this debt is a burden for many. If you’re struggling to make your student loan payments, deferment or forbearance can give you a respite from payments, but after that, you need a long-term solution.
Income-Driven Repayment (IDR) plans base payments on discretionary income, not loan balance. Reducing payments can get you back on track and protect your credit rating. Discretionary income is the difference between adjusted gross income and 150% of the federal poverty level for your family size and state.
1 - Income-Based Repayment (IBR)
To qualify for this plan, your IBR payment must be lower than it would be on the standard 10-year repayment plan. You can also qualify if your student loan balance is higher than your annual discretionary income.
- Loans included - Direct Loans (subsidized and unsubsidized), Direct PLUS and Consolidation Loans, Federal Stafford Loans (subsidized and unsubsidized), Federal Family Education Loan (FFEL) PLUS and Consolidation Loans.
- Payment - Set at 10-15% of your discretionary income, depending on when you began borrowing.
- Loan term - Repayment period is 20-25 years - 20 for borrowers after July 1, 2014, and 25 years for those that borrowed before mid-2014.
2 - Income-Contingent Repayment (ICR)
A plus of ICR is there’s no income eligibility requirement. It is also the only IDR plan under which Parent PLUS Loans qualify if you consolidate them with a Direct Loan. ICR may be your best chance at IDR if you struggle to qualify for others, but payments are higher than on other plans.
- Loans included - Direct Loans, Direct PLUS Loans (to graduate or professional students), Direct Consolidation Loans, consolidated loans of parent Direct PLUS Loans, Federal Stafford Loans (subsidized and unsubsidized), FFEL PLUS and Consolidation Loans, and Federal Perkins Loans.
- Payment – Set at 20% of discretionary income.
- Loan term - Repayment period of 25 years.
3 - Pay As You Earn (PAYE)
This plan is like IBR - the only difference is it has stricter requirements. To qualify for this repayment plan, you must be a recent borrower, taking on debt after October 2007. You also must have a Direct Loan disbursed on or after October 1, 2011.
- Loans included - Direct Loans (subsidized and unsubsidized), Direct PLUS Loans (to graduate or professional students), Direct Consolidation Loans that didn’t repay Parent PLUS Loans, Consolidated Federal Stafford Loans (subsidized and unsubsidized), FFEL PLUS Loans (graduate or professional students), FFEL Consolidation Loans, PLUS Loans (to parents), and Federal Perkins Loans.
- Payment – It is generally set at 10% of discretionary income.
- Loan term – The repayment period is 20 years.
4 - Revised Pay As You Earn (REPAYE)
The newest of the IDR plans, REPAYE began in December 2015. It is similar to PAYE, only that you don’t have to demonstrate financial need.
- Loans included - Direct Loans (subsidized and unsubsidized), Direct PLUS Loans (to graduate or professional students), Direct Consolidation Loans that didn’t repay PLUS Loans to parents, Consolidated Federal Stafford Loans, FFEL PLUS Loans (to graduate or professional students), FFEL Consolidation Loans that didn’t repay parent PLUS Loans, and Federal Perkins Loans.
- Payment – Set at 10% of discretionary income.
- Loan term – Set at 20-25 years – with a 20-year term if you were an undergraduate when you borrowed and 25 for graduate or professional study.
5 - Bankruptcy
Last, if you absolutely cannot afford your student loans and have extenuating circumstances. You must usually show undue hardship to get student debt forgiven in bankruptcy and will have an easier time if you have a chronic illness, disability, or long-term low income with few prospects.
Even if you can’t get your loans forgiven in bankruptcy, shedding other debt can make it more feasible to pay them when you don’t have other obligations on your financial plate. To find out more, read reviews from satisfied clients, then contact the Law Offices of John T. Orcutt.
Call +1-919-646-2654 now for a free student loan debt consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.