Income based student loan repayment is a part of the income driven student loan repayment, to minimize the financial hardship of students who tries to return the loan taken from the federal student loans. This is one of the federal program, the main aim of this program is to lower the repayment bills of student loans who are facing a problem of affording them.
What is income based student loans repayments
The term of income-based student loan repayments are a program of repayment of student loans in the United States it governs the payable amount that the individual who take the loan needs to give back to the lender every month depending on that particular person’s present income and current family size. The government has launched four specific methods of repayment plans. The Income-Based Repayment is one of the four plans that implemented by the government to tie up all loan bills to earnings of individual who has the standard planning for repayment of federal loans.
There are four repayment plans, and those are mentioned below
1. Income-Based Repayment (IBR),
2. Pay As You Earn (PAYE),
3. Revised Pay As You Earn (REPAYE),
4. Income-Contingent Repayment (ICR).
Brief idea about Income based repayments
- IBR is coming under the IDR plans which provided by the educational department. Likewise, other IDR schemes, IBR can help students who unable to repay their monthly payments on federal student loans, according to the good standard plan of repayment. From the time, IBR comes under the IDR plans, first, let’s know briefly about that, what kind of common options are available in it. These plans are not applicable for private students.
- The schedule of standard repayment of ten years is the omission for student loan debtors, but it is always not affordable. More student loan amounts will lead more monthly payments, which can become a challenging burden to maintain the continuity in the regular repayment. The lower incomes of borrowers can cause for making it a problem to cover the payments monthly under the plan of Standard Repayment. In such cases, IDR plans should be just a break to the debtor who needs. Instead of planning loan payments as per the loan balance of the student, the due amount at every month has tied up to the income of the borrower. According to the aid of Federal Student, this IBR plan helps students to make their payments affordable by considering the income and the members of the family.
- Student loan Payments based on the plan of IBR are likely 10% or 15% of the borrower’s discretionary income, but it will never exceed more than the amount of 10-year standard repayment. If a debtor pays the 10% or 15% of his discretionary income, it is depending on what time the borrower has borrowed the student loans for first time.
- Student loan Payment as per the PAYE Plan is 10% of the student’s discretionary income, but it will not exceed higher than the standard repayment amount of ten years.
- Payment according to the REPAYE Plan is also 10% of the debtor’s discretionary income, still it is unlike the plans of IBR and PAYE, the payments for the high-income debtors can be more than the standard repayment amount of 10 years. It is also not covering the accruing interest from the monthly repayments unlike IBR and PAYE, here 50% of unpaid interests is forgiven to reduce the negative amortization.
- Payment under the plan of ICR is lesser of 20% of the borrower’s discretionary income or simply the standard repayment amount of 12 years has adjusted as per the income of the borrower.
- Eligibility criteria for the plan of income-driven repayment depends on the plan has chosen by the borrower and when the debtor borrowed.
- Both the plans of IBR and Pay As You Earn require that the debtor describes a “necessity” to make the income-driven payments and have the eligible loans.
- The plan of ICR has consisted the lesser eligibility requirements. A borrower must require an eligible loan. This plan also offers student loan forgiveness after 25 years.
- The Revised Pay As You Earn plan is feasible for all Loan borrowers without the need of when the debtor had borrowed the money.
How to apply
If a debtor wants to apply for the income-driven repayment plan, the borrower should need to submit a request for the Income-Driven Repayment Plan, provide a clear information about his family size and his income. The debtor should include the tax information along with an alternative documentation of his income.
Best plan to choose
Most of the borrowers seeking the income-driven plan should elect the Revised Pay As You Earn. The REPAYE plan offers the benefits than compare to other plans such as IBR, ICR, and PAYE, including the subsidy of 50%interest if the needed payments do not cover the entire accruing interest. Even, there should be some of the disadvantages also to choosing this REPAYE plan, such as it could a result, in the higher amounts has to be paid over the full term of the loan or much more monthly payments from debtors with more incomes.
Advantages of IDR plans
There are a lot benefits to borrower for enlisting with this kind of plans. Such as mentioned below
- Monthly payments can be managed easily. all these income-driven repayment plans for the federal student loans reduce the burden of monthly payments if the student has a low income than compared to his student loan balance.
- The debtors can adjust their payments when their income or the size of family changes. The Monthly payments will calculate again according to the changes which happens in the income and circumstances of the family of the borrower.
- The government Loan Forgiveness Program offers for the forgiveness of a several types of the federal student loans after the payments of 10 years and qualifying employment. In those plans, the IBR plan is one under the category of the federal Loan Forgiveness Program.