Income Sensitive Repayment Plan

Detailed Explanation

The Income-Sensitive Repayment Plan is designed for borrowers with FFELP loans, offering a flexible payment structure that adjusts according to the borrower's income. This plan is particularly beneficial for those whose earnings may fluctuate or who expect their income to rise over time. 

Under this plan, the monthly payment amount is determined by the borrower's gross monthly income, ensuring that payments are affordable and sustainable. The percentage of income that goes towards loan payments can vary, but it typically ranges from 4% to 25% of the borrower's monthly gross income. The term of the loan under this plan can extend up to 15 years, which may be longer than the standard repayment term of 10 years for federal student loans. 

It's important to note that while lower monthly payments can provide immediate financial relief, they may result in higher total interest costs over the life of the loan. Borrowers are encouraged to consider their long-term financial goals and potential income changes when choosing this repayment option.

Example

Suppose a borrower has a federal student loan balance of $30,000 at an interest rate of 6.8%. Under an Income-Sensitive Repayment Plan, if the borrower's annual income is $35,000, their monthly payments could be set at 10% of their monthly gross income, which would be approximately $292. This amount is designed to be more manageable within the borrower's budget compared to a standard repayment plan.

Key Articles Related To Income Sensitive Repayment Plan

• IBR vs. PAYE vs. SAVE: Understanding Income-Driven Repayment Plans
• What To Do If You Can't Afford Your Student Loan Payments

Related Terms

• Income-Based Repayment Plan (IBR): A repayment strategy where monthly payments are capped at a percentage of the borrower's discretionary income, potentially leading to loan forgiveness after 20-25 years.
• Income-Driven Repayment Plan: An Income Driven Repayment Plan (IDR) is a student loan repayment option that sets monthly payments based on income and family size.
• Pay As You Earn (PAYE): A repayment plan that generally sets monthly payments at 10% of discretionary income and offers loan forgiveness after 20 years of qualifying payments.
• Extended Repayment Plan: An extended repayment plan is a student loan repayment strategy that lowers monthly payments by extending the loan term beyond the standard 10-year period.

Frequently Asked Questions

Who is eligible for an Income-Sensitive Repayment Plan?

Borrowers with eligible federal student loans, such as FFEL Program loans, can opt for this plan.

How do I apply for an Income-Sensitive Repayment Plan?

Contact your loan servicer to discuss your options and submit the necessary income documentation.

Can Income-Sensitive Repayment Plans lead to loan forgiveness?

Generally, these plans do not directly lead to loan forgiveness, unlike some other income-driven repayment plans.

What happens if my income changes?

You are required to reapply annually, and your payments may be adjusted based on changes in your income.