Federal Student Loan Repayment Plans
Roughly 40 million Americans carry student loan debt, as reported by marketwatch.com. There are a variety of options available to repay federal student loans. Let’s take a look at 3 of the many repayment plans available to you.
The most popular loan repayment plan is the income driven repayment plan. This type of repayment plan for your federal student loan provides you with an affordable monthly payment. This is especially helpful if you have large federal loan balances, and is a better long term solution than loan forbearance, or deferment. If you are earning near, or below poverty level, you can pay small payments, or none depending on your individual situation. There are also certain poverty exemptions that can bring your monthly payment down as low as $5 a month. With the income driven student loan repayment plan, the borrower can progress towards loan forgiveness, which the loan deferment option does not.
Adam S. Minsky, Esq. established the first law firm in Massachusetts devoted entirely to assisting student loan borrowers, and he remains one of the only attorneys in the country with a practice focused exclusively in this area of law.
In this video clip, Adam explains the 3 types of federal student loan repayment plans.
You can watch the complete Student Loan Debt Law CLE class here:
Student Loan Debt Law CLE
While forbearance and deferment are time limited, 36 months each, for the life of the federal student loan, income driven repayment can be renewed every year until the borrower reaches loan forgiveness. Loan forgiveness for the income driven plan is at 20 or 25 years. The interest with this plan still accrues, though there is that safety net of loan forgiveness.
Income-contingent repayment, (ICR) option is for direct loans only. ICR is not the best plan for most borrowers, though it is a solid option for some. ICR has a 25 year repayment term. After successfully making payments for 25 years, the remaining balance of the student loan is forgiven. ICR doesn’t make sense for most borrowers, except certain Parent PLUS borrowers, though you must first consolidate your student loans before applying. The formula for calculating your monthly payments goes like this. Single borrower, $50,000 federal student loan, Adjusted Gross Income = $40,000, ICR payment will be $445 per month. Monthly payments under this plan tend to run high.
Income-Based Repayment (IBR) repayment plans are for Direct or FFEL loans, not for Parent Plus loans. Monthly payments for this plan are based off of 15% of discretionary income, which is the difference between adjusted gross income and 15-% of federal poverty level. There is a 25 year repayment term for this plan as well, so after making continuous payments for 25 years, the remaining balance is forgiven.
These are a sampling of the different types of repayment options available for your student loan debt. Evaluate all your options by fitting them to your unique situation, to see which option makes sense for you. Always go with the cheapest option. Dealing with student loan debt can be a challenging task, check out the list of certified student loan debt attorneys in our directory for personal assistance.