If you have federal student loans, there are various repayment plans to choose from. These vary based on your income and some even provide deferment or forbearance periods in case of difficulty making payments.
Repayment for most student loans typically begins six months after you graduate or leave school, though it can begin sooner. Keep in mind that interest on federal student loans accrues during your grace period as well as periods of deferment and forbearance.
Income-Based Repayment (IBR)
Income-Based Repayment (IBR) is one of four federal student loan repayment programs designed to make student loans more manageable. IBR helps borrowers who are facing financial difficulty or have low income relative to their debt obligations by capping monthly payments at a percentage of your discretionary income.
IBR plans are ideal for borrowers who can pay off their student loan debt in full within 20 or 25 years, depending on the type and individual situation. Furthermore, those with outstanding balances at the end of an IBR plan may qualify for loan forgiveness.
To help borrowers better comprehend their options, the Department of Education has issued regulations to boost awareness about IBR and streamline the application process. This makes it simpler for more students to determine if they qualify for repayment through an income-driven repayment plan.
Pay As You Earn (PAYE)
Pay As You Earn (PAYE) is one of four federal student loan repayment plans designed to make monthly payments more manageable. Like other Income-Driven Repayment (IDRs), PAYE bases your payments on a percentage of your income, creating monthly payments that fit within budget.
If you’re interested in applying for this plan, consult with your loan servicer. Additionally, proof of income must be provided.
PAYE not only makes your monthly payments lower, but it can save money on interest as well. This is because PAYE pays off your loans in full over a longer period than the standard 10-year repayment plan that most graduates use.
Income-Contingent Repayment (ICR)
ICR is one of four federal student loan repayment plans that use a formula to calculate your monthly payments. The formula compares two payment ceilings and chooses the lower one as your desired amount for payment each month.
Generally, ICR offers the highest monthly student loan payments of all four income-driven repayment plans; however, if you need some assistance managing your debt, then this option could be worth considering.
ICR is available for borrowers with Direct Subsidized and Unsubsidized loans; Direct PLUS loans; and Direct Consolidation Loans. However, you must meet the income and family size standards in order to be eligible.
Pay As You Go (PAYG)
PAYG is a tax system that allows employers to withhold income taxes from employees in instalments rather than paying one large bill at the end of the year. This reduces employee stress and helps businesses meet their annual tax liabilities.
Pay-as-you-go financing is an increasingly popular financial model that enables consumers in emerging markets to purchase items like solar home systems through affordable installment payments. This eliminates the upfront cost for those who couldn’t afford it upfront, giving them access to life-altering products they need.
Many PAYG companies operate independently, yet there is an enormous potential for cross-sector and cross-industry innovation. For instance, collaboration between the energy and agriculture sectors could be utilized to develop PAYG technologies to support new products and services.
Income-Sensitive Repayment (ISR)
Income-Sensitive Repayment (ISR) is a federal student loan repayment plan that enables you to consolidate FFEL and Stafford loans into one monthly payment, matching it according to your family’s income and size.
The education department calculates your monthly income-driven repayment payment based on your household’s adjusted gross income (AGI) and family size. For instance, if you earn $75,000 in household income, then your IDR payment would be between 5%-10% of discretionary income.
Public Service Loan Forgiveness (PSLF)
Public Service Loan Forgiveness (PSLF) is a federal program that forgives some of your student loan debt after making 120 qualifying payments while employed full time by an accredited employer. It was designed to encourage individuals into careers in public service such as teaching, government service, nursing or public interest law.
Borrowers must fill out an employment certification form for PSLF on an annual basis or whenever they change jobs in order to keep track of their qualifying payments and guarantee they meet all forgiveness criteria.