Income Driven Repayment Plan

Detailed Explanation

Income-Driven Repayment Plans are designed to make student loan debt more manageable by aligning monthly payment amounts with the borrower's financial capacity. These plans calculate payments as a percentage of the borrower's discretionary income, typically ranging from 10% to 20%, and consider the size of the borrower's family.

The U.S. Department of Education offers several types of IDR plans, including the Income-Based Repayment (IBR) Plan, Pay As You Earn (PAYE) Repayment Plan, Saving on a Valuable Education (SAVE) Plan, and the Income-Contingent Repayment (ICR) Plan. Each plan has its own eligibility requirements, payment calculation methods, and terms for loan forgiveness.

Generally, if a borrower's income is low enough, their monthly payment under an IDR plan can be as low as $0. After 20-25 years of qualifying payments, depending on the specific plan, any remaining loan balance may be forgiven. These plans are particularly beneficial for borrowers who have high loan balances compared to their income, as they can prevent payments from becoming unaffordable.

Example

Jane graduates with $50,000 in federal student loans and secures a job with an annual salary of $35,000. Based on her income and family size (single with no dependents), she enrolls in an Income-Based Repayment Plan, which sets her monthly payments at $145, significantly lower than what she would owe under a Standard Repayment Plan.

This allows Jane to manage her living expenses while gradually paying off her student debt.

Key Articles Related To Income Driven Repayment Plan

• IBR vs. PAYE vs. SAVE: Understanding Income-Driven Repayment Plans
• How To Select The Best Student Loan Repayment Plan
  

Related Terms

• Standard Repayment Plan: A fixed payment plan where borrowers pay a set amount each month for 10 years.
• Graduated Repayment Plan: A Graduated Repayment Plan is a student loan repayment plan where payments start low and gradually increase, typically every two years.
• Income-Based Repayment (IBR): A type of IDR plan where payments are generally set at 10-15% of your discretionary income.
• Pay As You Earn (PAYE): An IDR plan where payments are generally 10% of discretionary income but never more than the 10-year Standard Repayment Plan amount.
• Saving on a Valuable Education (SAVE): An IDR plan that calculates payments as 5% of discretionary income and offers loan forgiveness in as little as 10 years.
• Income-Contingent Repayment (ICR): An IDR plan that calculates payments as the lesser of 20% of discretionary income or fixed payments over a 12-year term, adjusted according to income.
  

Frequently Asked Questions

Who is eligible for an Income-Driven Repayment Plan?

Borrowers with eligible federal student loans can apply for an IDR plan. Eligibility may vary between different IDR plans.

How do I apply for an IDR plan?

Borrowers can apply online through the Federal Student Aid website or contact their loan servicer directly.

Can IDR plans result in loan forgiveness?

Yes, after making 20-25 years of qualifying payments under an IDR plan, any remaining loan balance may be forgiven.

Do IDR plans cover all types of student loans?

IDR plans generally apply to federal student loans. Private loans are not eligible for federal IDR plans.