Student loan debt is a pressing issue in the United State affecting millions of borrowers and leading to a growing student loan debt crisis. However, there is relief for borrowers with federal student loans who have low income relative to their student loan debt burden — Income-Driven Repayment (IDR). IDR plans can help make monthly payments affordable for qualified borrowers and eventually lead to student loan forgiveness. In this guide, we’ll delve into the world of IDR plans and how they can bring financial relief.
The IDR program is comprised of a set of federal student loan repayment plans that offer borrowers more flexible terms based on their income and family size. The primary goal of IDR plans is to make student loan payments more manageable for borrowers struggling with the Standard Repayment Plan.
Under IDR plans, monthly loan payments are calculated as a percentage of the borrower’s discretionary income, the difference between annual income, and a percentage of the poverty guideline for the borrower’s family size and state of residence. The lower the discretionary income, the lower the monthly payment. This ensures that lower-income borrowers pay less each month, making their loan payments more affordable.
One of the key benefits of an IDR plan is that it could lead to loan forgiveness. Typically, after making payments for a specified period, any remaining loan balance may be forgiven. The exact forgiveness period depends on the specific IDR plan and whether the borrower meets certain criteria.
IDR plans are not one-size-fits-all solutions. They come in several variations, each with its own features, eligibility criteria, and potential for loan forgiveness.
This plan offers the lowest monthly payments and the shortest timeline to forgiveness, especially for low-balance borrowers.
Available to some borrowers with newer federal loans. It caps your monthly federal student loan payment at 10 percent of your discretionary income.
Monthly payments that are generally equal to 15% (or 10% if you are a new borrower on or after July 1, 2014) of your discretionary income.
Monthly payments that are the lesser of what you would pay on a repayment plan with a fixed monthly payment, adjusted based on your income or 20% of your discretionary income.
Although there are different IDR repayment plans, the most inclusive and helpful is the SAVE plan. Let’s review:
SAVE, formerly known as REPAYE, is an IDR plan that offers flexible terms for federal student loan borrowers. Under SAVE, monthly payments are calculated as 5% of discretionary income for borrowers with only undergraduate loans and 10% of discretionary income for those with graduate loans. If you have a mix of both, the plan uses a weighted average to determine your monthly payment.
One of SAVE’s notable features is the potential for loan forgiveness, with different forgiveness timelines based on your loan type. Low-balance borrowers with total loan amounts less than $12,000 may be eligible for forgiveness after just 10 years of qualifying payments. For borrowers with only undergraduate loans, forgiveness may be available after 20 years, while those with any graduate loans could potentially achieve forgiveness after 25 years of responsible payments.
See how SAVE compares to legacy IDR plans here:
|Plan||Monthly Payments||Repayment Period||Status|
|Income-Based Repayment (IBR)||
||20-25 years, depending on when you become a new borrower||Remains available but borrowers cannot select plan after 60 payments on REPAYE that occur on/after July 1, 2024|
|Pay as You Earn (PAYE)||
||20 years||Not accepting new enrollments as of July 2023|
|SAVE (formerly REPAYE)||
||This plan replaces REPAYE|
|Income-Contingent Repayment (ICR)||
The lesser of the following:
|25 years||Not accepting enrollments for current students; only available to future borrowers with consolidated Parent PLUS loans|
IDR plans offer substantial flexibility to borrowers, making them a valuable tool for managing student loan debt. Here’s how you could make IDR work for you:
The hallmark of IDR plans is the flexibility they afford borrowers. Life is rarely a straight path, and IDR plans take this into account. They allow you to adjust your monthly payments to match your financial situation. If your income increases, your payments may rise, and conversely, if it decreases, they could reduce.
This adaptability is a lifeline for borrowers facing income fluctuations, job changes, or unforeseen financial challenges. By modifying payments as needed, you may ensure that your student loan obligations remain manageable, preventing potential defaults and safeguarding the dream of loan forgiveness.
Regular recertification is not to be underestimated in the world of IDR plans. It is the linchpin of maintaining eligibility for loan forgiveness. Recertification involves updating your financial information annually, ensuring that your monthly payments accurately reflect your current situation.
Neglecting this vital step could have severe consequences, potentially reverting your payments to the standard plan, causing financial strain, and accumulating unpaid interest that could balloon your loan balance. It’s a responsibility that borrowers must take seriously, ensuring that they continue to benefit from the flexibility and potential forgiveness offered by IDR plans.
The SAVE Plan is set to introduce an automatic recertification process in July 2024. This development aims to streamline the annual requirement, making it more convenient for borrowers.
Student loan forgiveness through an IDR plan is a tangible goal for many borrowers. By understanding the intricacies of these plans, recertifying regularly, and choosing the right path for your financial situation, you could take significant steps toward a debt-free future.
By selecting the right IDR plan that aligns with your unique circumstances and staying committed to annual recertification, you could make substantial progress in managing and, potentially, forgiving your student loans. The journey may seem cumbersome, but with the right knowledge and resources, you could take control of your financial future.
Consider exploring these options further, do your research, and seek expert consultation for a tailored path to loan forgiveness.
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