Even though reducing or eliminating your student loan debt is ideal, it is not always an available option. This does not mean other options are not available, however, On the contrary, programs exist to help you modify the way in which you must repay your student loan debt. Rather than providing student loan forgiveness, one particular program offers student loan payment restructuring.
An income-driven repayment (IDR) plan reduces the monthly installment obligations on your student loan(s). This helps you better manage your money and experience financial relief. When partial or total student loan forgiveness is not an option, an IDR might be your best option for creating extra (and much-needed) room in your monthly budget.
Multiple types of IDR plans are offered. These programs are often confused with one another by prospective applicants. They are not simply interchangeable, however. This is because they all offer different levels of repayment terms and have slightly different requirements. The four primary types of IDR plans available to restructure the payment terms on your federal student loan(s) include:
- Revised Pay as You Earn (REPAYE) Repayment Plan.
- Pay as Your Earn (PAYE) Repayment Plan.
- Income-Based Repayment (IBR) Plan.
- Income-Contingent Repayment (ICR) Plan.
Your income level is the primary determining factor pursuant to qualifying for this type of program. Each IDR plan recalculates your new payment level as a percentage of your discretionary income. Each plan enforces its own policies and guidelines. REPAYE plan guidelines typically recalculate your new monthly payment to be ten percent of your monthly discretionary income. PAYE plans also recalculate your new monthly payment at ten percent of your discretionary income (but not more than permitted in the 10-year Standard Repayment Plan guidelines). This means PAYE plans might create new monthly payments, which are less-than ten percent of your discretionary income (if qualified).
IBR plans calculate payments as ten percent of discretionary income for new borrowers (meaning loans taken out on or after July 1, 2014). If you do not meet new borrower criteria your IBR plan might recalculate your new payment at fifteen percent of your discretionary income. 10-year Standard Repayment Plan guidelines apply to IBR plans as well, however.
ICR plan candidates have monthly repayments structured in one of two possible ways. The first method recalculates your new payment at twenty percent of your discretionary income. The second method adjusts your payment to that which you would pay for a twelve-year, fixed-payment repayment plan. Your new required installments and terms will be calculated based on whichever of these two methods results in lower monthly payments for you.
IDR plan terms last for twenty-years for new borrowers or twenty-five years for other borrowers. Please note: To be considered a new borrower you must also have had no outstanding balance on any federal loans prior to obtaining your Direct loan. Undergraduate federal student loan ICR plan enrollees have the option of switching to a REPAYE plan. To do this you must meet specific requirements. If qualified, however, switching from an ICR to a REPAYE plan might eventually qualify you for actual loan forgiveness as well.
