Many student loan borrowers are going to have to restructure their repayment plans this year. The Department of Education offers many different loan repayment options to help make payments more manageable. If this includes you, one of the most popular repayment programs to apply for is Income-Based Repayment.
Benefits of Income-Based Repayment
First, your payment is based on what you earn. What you owe is not considered except to determine the extent of the financial hardship. The new monthly payment amount will not be higher than 10 percent of your discretionary income if were a new borrower on or after July 1st, 2014. If you had loans prior to this date, then 15% of your discretionary income is used to calculate your payment. This is the amount of income you earn over 150% of the federal poverty line for your family size. This payment will not be higher than what you were paying under the standard 10-year repayment plan. In many cases, borrowers in the Income Based Repayment Program actually “pay” zero Dollars if their discretionary income isn’t high enough to meet the minimum amount. This is great for those who exit college with a huge loan balance and are hit with payments they cannot afford while looking for work, for example.
Qualifying Loan Types
Eligibility for Income Based Repayment depends on which loans you have taken out for your education, and when they were taken out. The following Federal Student Loans from the Direct Loan and Federal Family Education Loan (FFEL) Programs are the ones that qualify for application:
- Direct PLUS Loans (Graduate and Professional Students)
- Direct Consolidation Loans without PLUS Loans that were made directly to parents and not just as cosigners.
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- FFEL PLUS Loans (Graduate and Professional Students)
- FFEL Consolidation Loans without PLUS Loans that were made directly to parents and not just as cosigners.
If you do not have one of these loan types, you may still be eligible for the IBR by consolidating your federal student loans into the Direct Loan program.
Second, there is the interest deduction or forgiveness benefit. If your new monthly payment isn’t large enough to pay the accruing interest on the subsidized portion of your direct loan, the Federal government will pay it for you for a period of up to but no more than three consecutive years once you begin your Income Based Repayment program. This is one of the many forgiveness aspects that Federal Student Loans offer.
Forgiveness At End Of Term
Fourth is the 20-year forgiveness for new borrowers that took their loans out after July 1st 2014, or 25 years if the loans were taken before that date. The lifetime of an Income Based Repayment Loan is considered to be no more than 25 years. If over the lifetime of this loan, you make 300 qualified payments and the loan is still not completely paid off, any remaining loan amount will be forgiven and legally discharged. However, this discharged amount is considered taxable and must be paid for the year it was forgiven; i.e. a loan discharged in 2013 must be paid with other 2013 Income Taxes due in 2014.
Public Sector 120 Months Forgiveness
Finally, there is the student loan forgiveness for public service employees. If you make 120 on time, full monthly payments under an Income-Based Repayment program while employed full time with a public service organization, you may apply to have the remaining balance of your loan or loans forgiven and legally discharged. This could save up to another 15 years of payments.
Annual Recalculation of Payment
Interested applicants need to keep in mind that although there is no minimum payment with an Income Based Repayment Loan, the amount is recalculated every year. In addition to the criteria listed in the first benefit, family size and changes to income (including a spouse) will alter the required amount. This annual recalculation in the monthly payment depends on when the loan program was started. Income increases, a new spouse, having a child or getting laid off will definitely change your monthly payment either up or down. The good news is that if your income rises dramatically, you can change your repayment plan into a standard repayment at any time you choose.
Get Started Today!
While the Income Based Repayment Program is not an easy one to apply and qualify for, it certainly beats defaulting on your responsibilities and having that black mark on your credit report for many years to come. The benefits under this Income-Based Repayment program are extensive and designed specifically to help individuals and families in financial need while ensuring that the Federal Student Loan Program stays healthy and available for future students. If you think this may be an option that can be good for you and need assistance, call (844)-669-4407 for more information.