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4 Questions & Answers About Student Loans And Income-Driven Repayment Plans

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In a Nutshell

If you have a high amount of student loan debt, but a relatively low amount of income, you may be wondering if you can arrange an IDR, or income-driven payment plan. This article answers many of the questions you might have, such as what an IDR is, how the monthly payment is calculated, how you qualify for IDR, and what other tools are out there to help with student loan debt.

Written by Attorney Jamie Lee Ruiz.  
Updated July 19, 2021


If you have federal student loans, you may have considered an income driven repayment plan (IDR plan). All federal student loan IDR plans are explained in detail on studentaid.gov. These repayment options are advantageous to those who have relatively high debt in comparison to their income. IDR plans make monthly payments manageable by keeping required payment amounts below what they would be under a standard repayment plan. IDR plans calculate your monthly payment by assessing your discretionary income and taking a specific percentage of that total. 

This article will break down everything you need to know about IDR plans, specifically what an IDR is, if you qualify, and how your monthly payment will be calculated. It will also provide information about alternatives to successfully manage your federal student loans.

What Is An Income Driven Repayment Plan?

Income driven repayment plans allow student loan borrowers with federal student loans to make monthly payments based on their income. Gauging required monthly payments from your income may allow you to exceed the minimum payment while also allowing you to make manageable monthly payments. There are a number of income driven repayment plans accessible to you. Below are the eligibility requirements for each IDR plan: 

Revised Pay As You Earn Repayment Plan (REPAYE Plan) 

  • Any borrower with a direct loan is eligible. Eligible loans include direct subsidized & direct unsubsidized loans. 

  • Monthly payments are 10% of your discretionary income.

  • Monthly payments amounts are recalculated annually based on your income and family size.

  • Recertification of your income and family size annually is necessary, even if it does not change.

  • Your spouse's income and loan debt will be considered in calculating your monthly payment. This rule will apply regardless of whether you file your federal income tax return jointly or separately from your spouse. 

  • Most importantly, any outstanding balance on your federal student loan will be forgiven after the 20 years (or 25 years for graduate loans) of qualifying payments if not repaid during the repayment period.

Pay As You Earn Repayment Plan (PAYE Plan)

  • Eligible borrowers are those who took out a loan on or after October 1, 2007, and must have received a disbursement of a direct loan on or after October 1, 2011. Loans under the FFEL program will only be eligible if consolidated. 

  • Monthly payments are 10% of your discretionary income.

  • You must update your income and family size each year for calculation of monthly payments, even if that information has not changed.

  • In contrast to the REPAYE program, your spouse's income will only be considered if you file a joint return.

  • All loan types under this plan will be forgiven after 20 years.

Income-based Repayment Plan (IBR Plan)

  • Your debt amount will be considered to qualify under this repayment plan – you must have a relatively high debt load.

  • Like the other repayment plans, your monthly payments will be recalculated each year based upon your income and family size and that information will need to be updated annually, even if it does not change. 

  • However, your monthly payments will be either 10% or 15% of your discretionary income. Like the PAYE repayment plan, your spouse's income or loan debt will only be considered only if you file a joint tax return. 

  • Your remaining balance will be forgiven after 20 or 25 years, depending on when you received your first loans.

Income-Contingent Repayment Plan (ICR Plan)

  • You must have a direct loan to qualify under this repayment plan. This includes parent plus loans. 

  • Your monthly payment will either be the lesser of 20% of your discretionary income OR the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income. 

  • Like all other income driven repayment plans, monthly payments are recalculated annually based upon your income and family size, however, this plan will take into consideration the amount of your direct loans. 

  • Your spouse's income and loan debt will only be considered if you file a joint tax return OR you choose to repay your direct federal student loans jointly with your spouse. 

  • Your outstanding loan balance will be forgiven after 25 years.

The above income driven repayment federal student loan repayment plans are based on your income and may be repaid for a term of 20 to 25 years, depending on the plan. The payments will be lower than what you would pay within the 10 year standard repayment plan – the plan that you are automatically signed up for when your loans enter into payment status. However, in weighing the pros and cons, it is important to note the difference in assessment of spousal income and debt, as well as what loans qualify, and how much of your discretionary income is factored into your monthly payment. 

Notably, these plans differ from the public service loan forgiveness loan programs. These plans do not factor in the type of organization you work for, the nature of your work (part-time or full-time), or how long you have worked in that position. 

The best resource for you to utilize in evaluating IDR plans or public service loan forgiveness plans is studentaid.gov. 

How Is My Monthly Student Loan Payment Calculated?

The following factors are considered when calculating your federal student loan monthly payment under an income driven repayment plan:

  • Where you live;

  • Family size;

  • Total income; and

  • Your spouse's income and loan amount (if applicable).

Your loan servicer will determine what your discretionary income is under an income driven repayment plan, and your required monthly payment amount will be 10% to 20% of your discretionary income. Discretionary income is the amount that you earn that is at least 150 times the poverty guidelines. Whether and how much your income exceeds this threshold will depend upon how much you earn, where you live, and your family size. 

You can calculate your monthly payment amount under a given income driven plan using the federal student loan simulator. Eligibility under an income driven repayment plan also requires that you provide proof of your income by sharing your tax return with your loan servicer annually. 

How Do I Qualify For An Income Re-Driven Payment Plan?

You are eligible for an income re-driven payment plan if you are a federal student loan borrower. To qualify, you must submit a repayment plan request to your loan servicer and recertify your income for your loan servicer each year. One way to recertify your income for your loan servicer is by providing your tax return. Note that some plans are restricted to certain types of federal student loans, the amount of loans you have, and when you took out your loan. Your income may also affect the type of plan that you are eligible to enter into. 

What Other Tools Are There To Manage My Federal Student Loans?

There are other ways to get a handle on your federal student loans. Deferment or forbearance are alternatives ways to temporarily stop payments on your federal student loans under certain circumstances.Deferment is a temporary postponement of payments on your federal student loans wherein the unpaid interest generally does not accrue (keep in mind some loans will continue to accrue interest). Forbearance allows you to temporarily suspend or reduce your payments due to certain types of financial hardship. 

If you want to continue making monthly payments toward your federal student loans but are concerned with high interest rates, you may want to consider consolidating your loans into one loan or refinancing your loan to gain the benefit of a lower interest rate. You may even consider paying down the federal student loan with the highest interest rate first and then concentrating your efforts on loans with lower interest rates.

When exploring other debt relief options, it is important to do your homework before committing to a plan of action. Relief options that are available for other types of debt, like credit cards and medical bills, may not be available or applicable to student loans. If you have pondered whether filing for bankruptcy would provide relief regarding your student loan debt, the truth is… it depends. In most instances, bankruptcy does not provide any relief for student loan debt unless extreme hardship can be proven. This is very difficult and few have been able to successfully discharge their student loans through bankruptcy. However, bankruptcy may be an option to address other debts that you may have, so that you may focus your repayment efforts primarily on your student loans.

Let's Summarize…

There are a number of options available to you to pay down your student loan debt via affordable monthly payments based upon your income. Any of these payment plans will be lower than a standard repayment plan. Typically, the payments are 10 to 20% of your income. After 20 to 25 years, the remainder of your debt will be forgiven. It is important to communicate with your loan servicer to understand the requirements of income driven repayment plans, and determine which plan fits your needs.

Below are the highlights of each plan and why each may be attractive to you: 

Revised Pay As You Earn Repayment Plan (REPAYE plan) 

  • Your spouse's income and loan debt will be considered in calculating your monthly payment. This rule will apply regardless of whether you file your federal income tax return jointly or separately from your spouse. 

This is a great option if your spouse has little to no debt! 

Pay As You Earn Repayment Plan (PAYE plan)

  • Eligible borrowers are those who took out a loan on or after October 1, 2007, and must have received a disbursement of a direct loan on or after October 1, 2011. 

  • In contrast to the REPAYE program, your spouse's income will only be considered if you file a joint return.

This is an attractive option if you are a new borrower, and your spouse has a high amount of federal student loan debt (provided that you file a single tax return). 

Income-Based Repayment Plan (IBR plan)

  • Your debt amount will be considered to qualify under this repayment plan – you must have a relatively high debt load.

  • Like the PAYE repayment plan, your spouse's income or loan debt will only be considered only if you file a joint tax return. 

This income-driven repayment plan is perfect for borrowers with high debt loads, who file single tax returns. 

Income-Contingent Repayment Plan (ICR plan)

  • Your monthly payment will either be the lesser of 20% of your discretionary income OR the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income. 

  • Your spouse's income and loan debt will only be considered if you file a joint tax return OR you choose to repay your direct federal student loans jointly with your spouse. 

The ICR plan is geared towards those who can afford to dedicate more of their discretionary income to monthly payments and are considering combining their federal student loan monthly payments with their spouses.



Written By:

Attorney Jamie Lee Ruiz

LinkedIn

Jamie L. Ruiz, J.D., M.B.A. is admitted to practice law in the State of New York and the State of New Jersey. Ms. Ruiz is also admitted to the federal bar in both the Eastern and Southern Districts of New York. Ms. Ruiz currently operates a solo law practice concentrating on traf... read more about Attorney Jamie Lee Ruiz

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