Are you paying too much for your student loans?
Student loan payments can be expensive. If you have high student loan payments, it may be challenging to save for retirement, buy a home or pay other living expenses. So, how can you lower your student loan payments?
- What is an income-driven repayment plan?
- How does an income-driven repayment plan work?
- Who qualifies for income-based repayment?
- How do I enroll in an income-driven repayment plan?
- What is the best income-driven repayment plan?
- Is income based repayment a good idea?
- Can you really get student loan forgiveness?
- Does income driven repayment affect my credit score?
Compare Our Top Picks For Student Loan Refinance For 2021
Overview
| Key | Value |
|---|---|
| Variable APR: | 1.74% – 6.59% |
| Fixed APR: | 2.49% – 6.94% |
| Minimum Credit Score: | 650 |
| Minimum Income: | None |
| Fees: | None |
| Minimum Loan Amount: | $5,000 ($10,000 in CA) |
Details
| Key | Value |
|---|---|
| Eligible Loans: | Private & Federal |
| Eligible Degrees: | Undergraduate & Graduate |
| Loan Terms: | 5, 7, 10, 15, 20 years |
| Borrower Residency: | All states |
| Hardship Deferment: | Yes |
| Co-signer Option: | Yes |
Overview
| Key | Value |
|---|---|
| Variable APR: | 1.88% – 5.64% |
| Fixed APR: | 2.44% – 5.79% |
| Minimum Credit Score: | 650 |
| Minimum Income: | None |
| Fees: | None |
| Minimum Loan Amount: | $5,000 |
Details
| Key | Value |
|---|---|
| Eligible Loans: | Private & Federal |
| Eligible Degrees: | Undergraduate & Graduate |
| Loan Terms: | 5-20 years |
| Borrower Residency: | All States except KY or NV |
| Hardship Deferment: | Yes |
| Co-signer Option: | No |
Overview
| Key | Value |
|---|---|
| Variable APR: | 1.86% – 6.01% |
| Fixed APR: | 2.47% – 5.99% |
| Minimum Credit Score: | 680 |
| Minimum Income: | $35,000 |
| Fees: | None |
| Minimum Loan Amount: | $15,000 |
Details
| Key | Value |
|---|---|
| Eligible Loans: | Private & Federal |
| Eligible Degrees: | Undergraduate & Graduate |
| Loan Terms: | 5, 7, 10, 15, 20 years |
| Borrower Residency: | All States |
| Hardship Deferment: | Yes |
| Co-signer Option: | Yes |
Overview
| Key | Value |
|---|---|
| Variable APR: | 1.87% – 6.15% |
| Fixed APR: | 2.30% – 6.25% |
| Minimum Credit Score: | 660 |
| Minimum Income: | None |
| Fees: | None |
| Minimum Loan Amount: | $5,000 |
Details
| Key | Value |
|---|---|
| Eligible Loans: | Private & Federal |
| Eligible Degrees: | Undergraduate & Graduate |
| Loan Terms: | 5 – 20 years |
| Borrower Residency: | All states |
| Hardship Deferment: | Varies |
| Co-signer Option: | Yes |
Overview
| Key | Value |
|---|---|
| Variable APR: | 1.89% – 5.90% |
| Fixed APR: | 2.50% – 6.00% |
| Minimum Credit Score: | 660 |
| Minimum Income: | None |
| Fees: | None |
| Minimum Loan Amount: | $5,000 |
Details
| Key | Value |
|---|---|
| Eligible Loans: | Private & Federal |
| Eligible Degrees: | Undergraduate & Graduate |
| Loan Terms: | 5, 7, 10, 15, 20 years |
| Borrower Residency: | All States |
| Hardship Deferment: | Yes |
| Co-signer Option: | Yes |
Overview
| Key | Value |
|---|---|
| Overall Rate: | 1.95% – 3.85% |
| Variable APR: | – |
| Fixed APR: | 1.95% – 3.85% |
| Minimum Credit Score: | None |
| Minimum Income: | None |
| Fees: | None |
| Minimum Loan Amount: | $25,000 |
Details
| Key | Value |
|---|---|
| Eligible Loans: | Private & Federal |
| Eligible Degrees: | Undergraduate & Graduate |
| Loan Terms: | 5, 7, 10, 15 years |
| Borrower Residency: | Must live near a branch in California; New York City; Boston; Greenwich, Connecticut; Palm Beach, Florida; Portland, Oregon; or Jackson, Wyoming |
| Hardship Deferment: | No |
| Co-signer Option: | Yes |
Overview
| Key | Value |
|---|---|
| Variable APR: | 1.90% – 5.25% |
| Fixed APR: | 2.95% – 7.63% |
| Minimum Credit Score: | 680 |
| Minimum Income: | $24,000 |
| Fees: | None |
| Minimum Loan Amount: | $5,000 |
Details
| Key | Value |
|---|---|
| Eligible Loans: | Private & Federal |
| Eligible Degrees: | Undergraduate & Graduate |
| Loan Terms: | 5, 7, 10, 15, 20 years |
| Borrower Residency: | All states, except ME, ND, NV, RI, WV |
| Hardship Deferment: | Yes |
| Co-signer Option: | Yes |
What is an income-driven repayment plan?
An income-driven repayment plan is a student loan repayment plan for your federal student loans that is offered by the U.S. Department of Education. The federal government does not offer any income-driven repayment plans for private student loans.
There are four types of income-driven repayment plans for federal student loans:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Contingent Repayment (ICR)
Income-Based Repayment (IBR)
If you are a new federal student loan borrower after July 1, 2014:
- Your monthly student loan payment is capped at 10% of your monthly discretionary income
- Your student loan payment will never be more than the 10-Year Standard Repayment Plan amount.
- You are eligible to receive student loan forgiveness on your remaining balance after 20 years of payments.
If you are not a new federal student loan borrower after July 1, 2014:
- Your monthly federal student loan payment is capped at 15% of your monthly discretionary income.
- Your federal student loan payment will never be more than the 10-Year Standard Repayment Plan amount.
- You are eligible to receive student loan forgiveness on your remaining balance after 25 years of payments.
Pay As You Earn (PAYE)
Most borrowers who qualify for PAYE can’t afford their student loan payments and started college after 2007. If you enrolled before 2007, you may still qualify for PAYE if:
- You borrowed federal student loans after October 1, 2007;
- You didn’t have a federal student loan balance when you borrowed federal student loans after October 1, 2007; and
- You received a Direct Loan on or after October 1, 2011.
Revised Pay As You Earn (REPAYE)
Revised Pay As You Earn (PAYE) is an income-driven repayment plan that caps your monthly federal student loan payment at 10% of your monthly discretionary income and forgives your remaining federal student loan balance after 20 years (undergraduate student loans) or 25 years (graduate student loans).
Income-Contingent Repayment (ICR)
Income-Contingent Repayment (ICR) is an income-driven repayment plan that caps your monthly federal student loan payment at the lesser of the following:
- 20% of your discretionary income; and
- What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income
Since monthly payments are capped at 20% of discretionary income, ICR is considered to be more expensive than other income-driven repayment plans. After 25 years of payments, you can receive student loan forgiveness on your remaining federal student loan balance.
How does an income-driven repayment plan work?
Each year, you provide your annual income to the U.S. Department of Education. Based on your income, family size and state of residence, as well as federal poverty guidelines, your discretionary income and student loan payment is calculated.
Who qualifies for income-based repayment?
Income-Based Repayment (IBR)
To qualify for IBR:
- You must demonstrate financial need based on your income and family size; and
- The student loan payment you would be required to make under IBR (based on your income and family size) must be lower than what you would pay under the Standard Repayment Plan.
Here is a simple test to know if you qualify for IBR: if your federal student loan debt is higher than all or most of your discretionary income, you likely qualify.
For IBR, only certain types of federal loans are eligible:
- Direct Loans (subsidized and unsubsidized)
- Federal Stafford Loans (subsidized and unsubsidized)
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans that did not repay any PLUS loans made to parents
- FFEL PLUS Loans made to graduate or professional students (but not made to parents)
- FFEL Consolidation Loans that did not repay any PLUS loans made to parents
- Federal Perkins Loans (if consolidated)
Payment Amount: 10% – 15% of your discretionary income.
Your discretionary income is equal to the difference between your adjusted gross income and 150% of the federal poverty guidelines based on your family size and state of residence.
You will pay 10% of discretionary income if you first borrowed federal student loans starting July 1, 2014 and previously did not borrow a Direct Loan or FFEL loan. You will pay 15% of your discretionary income if you borrowed federal student loans prior to July 1, 2014.
Repayment period:Â 20-25 years.
Advantages:
- You can receive lower monthly payments based on your income
- You can receive student loan forgiveness
Disadvantages:
- You may pay more student loan interest
- You may pay off your student loans before you receive student loan forgiveness
- Any student loan forgiveness you receive may be taxable
Pay As You Earn (PAYE)
To qualify for PAYE:
- You must demonstrate financial need based on your income and family size;
- The student loan payment you would be required to make under PAYE (based on your income and family size) must be lower thanwhat you would pay under the Standard Repayment Plan;
- You borrowed federal student loans after October 1, 2007;
- You didn’t have an outstanding federal student loan balance when borrowing these student loans; and
- You must have received a Direct Loan on or after October 1, 2011.
Eligible Student Loans:
- Direct Loans (subsidized and unsubsidized)
- Direct PLUS Loans made to graduate or professional students (but not made to parents)
- Direct Consolidation Loans that did not repay any PLUS loans made to parents
Eligible Student Loans, if consolidated:
- Federal Stafford Loans (subsidized and unsubsidized)
- FFEL PLUS Loans made to graduate or professional students (but not made to parents)
- FFEL Consolidation Loans that did not repay any PLUS loans made to parents
- Federal Perkins Loans
Payment Amount:Â 10% of your discretionary income.
Your discretionary income is equal to the difference between your adjusted gross income and 150% of the federal poverty guidelines based on your family size and state of residence.
Repayment period:Â 20years.
Advantages:
- You can receive lower monthly payments based on what you earn
- PAYE offers one of the lowest monthly payments of any income-driven repayment plan
- You can receive student loan forgiveness
Disadvantages:
- You may pay more student loan interest
- You may pay off your student loans before you receive student loan forgiveness
- Any student loan forgiveness you receive may be taxable
REPAYE
To qualify for REPAYE, you don’t have to demonstrate financial need nor does it matter when you borrowed federal student loans.
Eligible Student Loans:
- Direct Loans (subsidized and unsubsidized)
- Direct PLUS Loans made to graduate or professional students (but not made to parents)
- Direct Consolidation Loans that did not repay any PLUS loans made to parents
Eligible Student Loans, if consolidated:
- Federal Stafford Loans (subsidized and unsubsidized)
- FFEL PLUS Loans made to graduate or professional students (but not made to parents)
- FFEL Consolidation Loans that did not repay any PLUS loans made to parents
- Federal Perkins Loans
Payment Amount:Â 10% of your discretionary income.
Your discretionary income is equal to the difference between your adjusted gross income and 150% of the federal poverty guidelines based on your family size and state of residence.
Repayment period: 20 – 25 years.
Advantages:
- You can receive lower monthly payments based on what you earn
- REPAYE offers one of the lowest monthly payments of any income-driven repayment plan
- You can receive student loan forgiveness after 20 or 25 years
Disadvantages:
- You may pay more student loan interest
- You may pay off your student loans before you receive student loan forgiveness
- Any student loan forgiveness you receive may be taxable
Income-Contingent Repayment (ICR)
To qualify for ICR:
- You must have an eligible federal student loan.
- There are no income requirements
- This is the only income-driven repayment plan for borrowers with Parent PLUS Loans
Eligible Student Loans:
- Direct Loans (subsidized and unsubsidized)
- Direct PLUS Loans made to graduate or professional student
- Direct Consolidation Loans
Eligible Student Loans, if consolidated:
- Parent PLUS Loans
- Federal Stafford Loans (subsidized and unsubsidized)
- FFEL PLUS Loans
- FFEL Consolidation Loans
- Federal Perkins Loans
Payment Amount: The lesser of:
- 20% of your discretionary income, and
- Your monthly payment on a 12-year fixed repayment plan, adjusted based on your income
Your discretionary income is equal to the difference between your adjusted gross income and 100% of the federal poverty guidelines based on your family size and state of residence.
Repayment period:Â 25 years.
- There are no income requirements, which means it’s easy to qualify
- Parents with Parent PLUS Loans can enroll in ICR once they consolidate federal student loans into a Direct Consolidation Loan
- You can receive student loan forgiveness
Disadvantages:
- You may pay the highest monthly payment under ICR than any other income-driven repayment plan
- Your monthly payment under ICR may be higher than your monthly payment under the Standard Repayment Plan
- Any student loan forgiveness you receive may be taxable
How do I enroll in an income-driven repayment plan?
How do you know if you have federal student loans? Follow these steps:
- Check the National Student Loan Data System.
- You will need for Federal Student Aid ID, which you created when you applied for the Free Application For Federal Student Aid (FAFSA®).
- All your federal student loans will be listed in the National Student Loan Data System.
- If there are no student loans listed, then your student loans are likely private student loans.
Alternatively, you can contact your student loan servicer, who can tell you whether you have federal student loans, private student loans or both. If you only have private student loans, you won’t qualify for an income-driven repayment plan. However, you can lower your interest rate and lower your monthly payment through student loan refinancing.
Once you verify that you have federal student loans, it’s time to enroll in an income-driven repayment plan. You will need the following:
- Your Federal Student Aid ID
- Your social security number
- If you are married, your spouse’s social security number
- Recent pay stubs or a signed letter on company letterhead from within the last 90 days showing dates and hours worked
- Your spouse’s income and whether you spouse has student loan
1. Enter Personal Information
You will be asked to enter basic personal information.
2. Choose an income-driven repayment plan
You can either choose an income-driven repayment plan, or you can have your student loan lender help choose the income-driven repayment plan that qualifies you for the lowest monthly payment.You will be asked whether you want to enroll in a new income-driven repayment plan, switch to a different income-driven repayment plan or resubmit the same information. Each year, you will need to re-certify your personal information, income and financial information.
3. Enter information about your spouse and family
First, you will provide information about your family, including your children and dependents. Then, you will provide information about your spouse, including your spouse’s social security number, date of birth, income, whether your spouse has student loans and tax filing status. If you are not married, you will provide your income information.
4. Provide your income information
Next, you will provide your income information, which is supported by either a pay stub or letter from your employer. You can verify your adjusted gross income from your most recent federal tax returns. Alternatively, you can use the IRS Data Retrieval Tool, which will add your income information directly to your income-driven repayment planapplication. If you did not file an income tax return, you can provide a paystub. If you are unemployed, you can provide documentation that shows your unemployment benefits.
5. Certify your request to enroll in an income-driven repayment plan
Certify whether you are requesting a specific income-driven repayment plan, or you can ask your lender to place you in an income-driven repayment plan with the lowest monthly payment.
What is the best income-driven repayment plan?
Income-Based Repayment (IBR)
Income-Based Repayment (IBR) is the best income-driven repayment plan when:
- You don’t qualify for Pay As You Earn (PAYE)
- You have FFELP loans
- You expect your income to remain steady or decline over time
- You have student loan debt from graduate school
- You are married and both you and your spouse generate income
Pay As You Earn (PAYE)
Pay As You Earn (PAYE) is the best income-driven repayment plan when:
- You have graduate school student loans
- You don’t expect your income to increase over time
- You are married and both you and your spouse generate income
Revised Pay As You Earn (REPAYE)
Revised Pay As You Earn (REPAYE) is the best income-driven repayment plan when:
- You are not married
- You expect your income to increase over time
- You do not have graduate school student loans
- You want to minimize interest accrual on your student loans
Income-Contingent Repayment (ICR)
Income-Contingent Repayment (ICR) is the best income-driven repayment plan when:
- You have Parent PLUS Loans
What are the advantages of income-driven repayment plans?
There are two main advantages of income-driven repayment plans:
- You can make a lower monthly student loan payment
- You can receive student loan forgiveness
You can make a lower monthly student loan payment
Income-driven repayment plans help you lower your monthly payment for your federal student loans. Income-driven repayment plans typically have lower than monthly payments than the Standard Repayment Plan. Your new monthly payment will be capped as a percentage of your adjusted gross income. For example, PAYE and REPAYE cap your monthly student loan payment at 10% of your discretionary income. IBR caps your monthly student loan payment at either 10% or 15% of your discretionary income. ICR caps your monthly student loan payment at 20% of your discretionary income or your monthly payment on a 12-year fixed repayment plan, adjusted based on your income, whichever is lower.
You can receive student loan forgiveness
Is Income-Based Repayment A Good Idea?
There are several disadvantages of income-driven repayment plans:
You might pay more for your student loans
Income-driven repayment plans lower your monthly payment, which can provide flexibility and extra money for living expenses, savings and investments. However, an income-driven repayment plan does not lower your interest rate. While an income-driven repayment plan saves money in the short-term, it can be more expensive in the long run. While you pay less each month, interest will accrue on your federal student loans. Therefore, you could pay more in total interest with an income-driven repayment plan than you would under the Standard Repayment Plan. If you want to lower your interest rate, then consider student loan refinancing.
For example, let’s assume you have $50,000 of student loans at a 7% interest rate. On a 10-year Standard Repayment Plan, you would pay $581 each month, and total interest over 10 years of $19,665. On a 20-year repayment plan, you would pay $388 each month, and total interest over 10 years of $43,036. Therefore, while your monthly payment decreased $193, your total interest payment increased $23,371.
You may not receive student loan forgiveness
Income-driven repayment plans offer you federal student loan forgiveness after 20 or 25 years. However, you may pay off your student loans before you receive any student loan forgiveness. Understand which income-driven repayment plan option provides you with the maximum student loan forgiveness. These student loan calculators can help:
You must recertify income each year
When you enroll in an income-driven repayment plan, you provide income information for you, and if applicable, for your spouse. Each year, you must recertify your income to determine your monthly payment and to ensure that you qualify for the same income-driven repayment plan. If your income increases, your payment can change and you may not qualify for the same income-driven repayment plan. Therefore, an income-driven repayment plan takes more time and energy given the annual recertification.
Your student loan payments can increase
You may owe income tax
Can you really get student loan forgiveness?
You may be wondering whether you can really get student loan forgiveness. If you have federal student loans, you must be enrolled in an income-driven repayment plan to receive student loan forgiveness. Income-driven repayment plans offer student loan forgiveness after 20 or 25 years, depending which income-driven repayment plan you choose. To qualify for student loan forgiveness, you must make on-time payments for 20 to 25 years, and then you can receive student loan forgiveness on any remaining balance. Remember, the federal government treats any student loan debt balance that is forgiven as taxable income. Therefore, you may owe income tax on the amount of federal student loan forgiveness that you receive. Student loan forgiveness through income-driven repayment plans apply only to federal student loans, not private student loans.
It is possible to receive federal student loan forgiveness earlier than 20 or 25 years. For example, the Teacher Loan Forgiveness Program offers partial student loan forgiveness after five complete and consecutive academic years of full-time teaching in a low-income school.
Does income driven repayment affect my credit score?
The most popular income-driven repayment plans are Income-Based Repayment (IBR), Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE). If you enroll in an income-driven repayment plan, you may ask the following questions regarding your credit score:
- Will signing up for income-driven repayment hurt my credit score?
- Will signing up for income-driven repayment help my credit score?
Will signing up for income-driven repayment hurt my credit score?
Will signing up for income-driven repayment help my credit score?
When you sign up for an income-driven repayment plan, there is little impact to your credit score. The good news is that you can take proactive steps to increase your credit score when you enroll in an income-driven repayment plan.
Pay off other debt: Since your monthly student loan payment will be lower, you have more money available each month. You can use that extra money to pay off other debt, such as credit card debt. When you pay off debt, you can increase your debt-to-income ratio. A higher debt-to-income ratio can increase your credit score.
Avoid missing payments:Â An income-driven repayment plan can also remove the burden of high monthly student loan payments. This can mean you are less likely to skip a payment or make a late payment for your student loans. Making a late payment or missing a payment are two major ways to lower your credit score. With more income each month, you have more money and flexibility to pay off your student loans and avoid bad financial decisions.
