If you have federal student loans, you need a student loan lawyer to help select the right federal student loan repayment plan and to make sure that you are eligible for student loan forgiveness.
One of the main advantages of federal student loans is the ability to utilize the income-driven repayment plans offered by the federal government. The term “income-driven repayment” is an umbrella term that encompasses several types of federal student loan repayment plans that are based on your income.
Each federal student loan repayment plan contains some minor differences that can be important in choosing the plan that is right for you. This is where an experienced federal student loan lawyer can help. We will analyze your situation to determine which plan would provide you with the most advantageous payment amount and potential repayment period.
What repayment plans are available for federal student loans?
There are a number of federal student loan repayment plans available for federal student loans. These federal student loan repayment plans are typically grouped into one large category called “income-driven repayment plans” – meaning that the federal student loan repayment plan is based upon your income and your ability to pay. There are other plans available that are not income-driven, but these are less common.
The income-driven repayment plans for federal student loans are:
- IBR – Income Based Repayment
- New Borrower IBR – New Borrower Income Based Repayment
- PAYE – Pay as You Earn
- REPAYE – Revised Pay as You Earn
- ICR – Income Contingent Repayment
- ISR – Income-Sensitive Repayment
We’ll go into more details for these federal student loan repayment plans below.
Income Based Repayment (IBR)
The income based repayment (or IBR) is one of the more common federal student loan repayment plans.
- Eligible Loans: Direct loans, Direct PLUS loans made to graduate or professional students (loans made to parents are ineligible), Direct consolidation loans that didn’t repay PLUS loans made to parents, Federal Stafford loans, FFEL loans and FFEL consolidation loans that didn’t repay PLUS loans made to parents
- Ineligible Loans: Perkins loans
- To Qualify: (1) Your prospective payments must be lower than they’d be on the Standard Repayment Plan; and (2) You also must demonstrate financial need based on your income. (For example, if your student loan debt is higher than your annual discretionary income or is a significant portion of your annual income, you should qualify).
- Payment amount: Generally, 15% of your annual discretionary income divided by 12 which is calculated as the difference between your AGI (adjusted gross income) and 150% of the federal poverty guideline for your family size and state
- Repayment period: 25 years
New Borrower Income Based Repayment (New Borrower IBR)
For individuals whose loans post-date July 1, 2014, the New Borrower IBR can be a great federal student loan repayment plan. It is similar to the IBR, but does provide for a smaller payment and shorter repayment period.
- Eligible Loans: Direct loans, Direct PLUS loans made to graduate or professional students (loans made to parents are ineligible), Direct consolidation loans that didn’t repay PLUS loans made to parents, Federal Stafford loans, FFEL loans and FFEL consolidation loans that didn’t repay PLUS loans made to parents
- Ineligible Loans: Perkins loans
- To Qualify: (1) Your prospective payments must be lower than they’d be on the Standard Repayment Plan; (2) You also must demonstrate financial need based on your income; (3) only eligible for individuals who had no loans prior to July 1, 2014
- Payment amount: Generally, 10% of your annual discretionary income divided by 12 which is calculated as the difference between your AGI (adjusted gross income) and 150% of the federal poverty guideline for your family size and state
- Repayment period: 20 years
Pay as You Earn (PAYE)
The PAYE plan bay be your best option in certain cases. It can provide similar advantages to New Borrower IBR.
- Eligible loans: Direct Loans (including Direct PLUS and consolidation)
- Eligible if consolidated: Federal Stafford loans, FFEL PLUS and consolidation (not made to parents) and Perkins loans
- To Qualify: (1) Prospective payments must be smaller than they would be on the standard repayment plan; (2) demonstrate financial need; and (3) must be a new borrower as of October 1, 2007 and have received your Direct loan on or before October 1, 2011 (No loans before October 1, 2007)
- Payment amount: Generally, 10% of your annual discretionary income divided by 12, which is the difference between your annual income and 150% of the federal poverty guideline for your family size and state
- Repayment period: 20 years
Revised Pay as You Earn (REPAYE)
REPAYE can be your best bet if your loans are ineligible for PAYE. The main difference is that REPAYE removes the date restrictions associated with PAYE. You are eligible regardless of when you took out your first federal student loan.
- Eligible loans: Direct Loans (including Direct PLUS and consolidation)
- Eligible if consolidated: Federal Stafford loans, FFEL PLUS and consolidation (not made to parents) and Perkins loans
- To Qualify: (1) Prospective payments must be smaller than they would be on the standard repayment plan; and (2) demonstrate financial need
- Payment amount: Generally, 10% of your annual discretionary income divided by 12, which is the difference between your annual income and 150% of the federal poverty guideline for your family size and state. Your spouse’s income is included in the monthly payment calculation, regardless of tax filing status.
- Repayment period: 20 or 25 years
- It’s a 20-year term if all your loans under the plan were for undergraduate study.
- It’s a 25-year term if any of your loans were for graduate or professional study.
Income Contingent Repayment (ICR)
ICR plans are the oldest income-driven repayment plan. While many times, other income-driven repayment plans may be better, ICR plans are the only income-driven repayment plan under which Parent PLUS loans qualify after you consolidate them into a Direct loan. This can be a distinct advantage in many cases so it is still a viable federal student loan repayment plan.
On the other hand, the monthly payment is based on your income and family size and might even be higher than it would be on the Standard Repayment Plan. As a result, ICR plans have the highest potential payment amount of all income-driven plans.
- Eligible loans: Direct Loans (including Direct PLUS and consolidation)
- Eligible if consolidated: Direct PLUS loans made to parents Federal Stafford loans, FFEL PLUS and consolidation and Perkins loans
- Payment amount: The lesser of the following options: (1) 20% of your discretionary income divided by 12, which is the difference between your annual income and 150% of the federal poverty guideline for your family size and state; OR (2) the payment amount on a 12-year fixed repayment plan, adjusted for income.
- Repayment period: 25 years
Income-Sensitive Repayment (ISR)
The ISR plan allows borrowers to reduce monthly loan payments while maintaining a 10-year term. Essentially, this option may be viable where you need short-term relief, but would prefer not to extend your loan term to 20 or 25 years.
- Eligible loans: Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, FFEL Plus Loans, or FFEL Consolidation Loans
- Ineligible loans: Direct loans
- Payment amount: Monthly loan payments are capped at 4 to 25 percent of your gross monthly income
- Repayment period: This plan provides short term relief while maintaining a 10 year term.
What is income-driven repayment forgiveness?
Other than lower monthly payments, the IDR plans also offer an advantage in terms of the forgiveness of the remaining balance of the loan after 20 or 25 years of qualifying payments. As of now, the amount forgiven is potentially taxable, but the law is always changing. Additionally, our tax lawyers can advise you on ways to address this. Depending on your situation, you may owe no tax at all. In other situations, we can reduce the tax owed.
Regardless, the amount you would pay in taxes on the forgiven balance will be substantially less than the remaining balance. At ARM Lawyers, our top student loan attorneys will help you find the best plan for you to maximize your savings and plan for future loan forgiveness.
What student loan repayment plan is best?
Unless you are able to afford a 10-year repayment or you qualify for another discharge such as the several administrative discharge options, IDR is likely going to be a good strategy for you. Every situation is different, but lower monthly payments and working towards loan forgiveness are great ways to handle your federal student loans. If nothing else, it is nice to have the possibility of discharging your student loans after 20 or 25 years in your back pocket in case no other options are available to you.
How does student loan repayment work?
Federal student loan repayment plans typically work in one of two ways. You’re either looking to pay your loans in full or you are looking to pay less than the full balance.
If you are trying to pay your loans in full, there are a number of options. In these cases, a federal student loan repayment plan may simply extend the length of time to repay in order to lower you monthly payment. This option is particularly useful when your balances are small or your income is high.
If you are trying to pay less than the full balance, you would need to enter an income-driven repayment plan with income-driven repayment forgiveness. Any of the IDR plans we discuss above could help you achieve that goal. We just need to find the best federal student loan repayment plan for you.
Can a lawyer help with federal student loan repayment?
Yes! If you haven’t gathered by now, our student loan lawyers can help you crunch the numbers on your loans. We can discuss whether it makes sense to pay your loans in full or whether you’d benefit from income-driven repayment. We can help you pick which plan is best for your specific facts. Remember, you may not be eligible for every IDR plan and depending on the facts of your case, certain plans may be better than others.
Finally, while it’s not common to discharge student loans in bankruptcy, we can determine if this is a viable option for you.
Every case is different and a student loan lawyer can give you advice specific to your situation.
Help! My student loan repayment is too high!
No problem. If your federal student loan repayment is too high, it likely means one of two things. Either you’re in the wrong repayment plan for your situation or it means that you may not be filing your taxes correctly. Either way, we have you covered. Our student loan attorneys can review your tax returns and your student loans to find the best repayment plan for you. If your payment plan is incorrect, we can help you change it. If your tax returns are incorrect, we can help you with those too.
The first step is to call or e-mail us today to schedule your consultation.
Contact a federal student loan repayment plan lawyer today
The income-driven repayment plans offered for federal student loans can be a great way to get control of your student loan payments and really start living your life. ARM Lawyers can skillfully guide you through the process and in choosing the best option for your specific situation.
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