federal student loan relief programs can help your student loan debt problems.
Your financial situation is different from someone else. The Federal student loan relief service that works for someone may not be the best choice for someone else. You should take the time to understand all the debt relief options available to you to find the best solution for your needs and goals.
Federal Student Loan Relief Guide Locator
What Is Federal Student Loan Relief?
Federal Student Loan Relief are a series of debt relief programs where your payment on a federal student loan can be adjusted to reflect your income and family size (your ability to pay) rather than the terms of the loan. Income Driven Repayment (IDR) is an acknowledgement by the federal government that for many, the salary you earn after earning your degree does not match the educational expenses you incurred in the process. An income driven repayment plan and can reduce your monthly student loan payments. If your payments are unaffordable due to a high student loan balance compared to your current income, an IDR plan can provide much-needed relief.
Four Federal Loan Relief IDR Plans
An Income-Driven Repayment plan sets your monthly federal student loan payment at an amount that is intended to be affordable based on your income and family size. The Department of Education offers IDR plans to borrowers who qualify, and they can lower your payments to as little as 10 percent of your discretionary income.
There are four IDR plans available but choosing one can be a little overwhelming and confusing. Switching to one of these IDR plans is usually right for you when: you can not afford your current student loan payments; you will qualify for Public Service Loan Forgiveness; you have high debt and a low income. Before deciding, you will want to be sure you understand IDR plans and how they can affect your finances and student debt.
Income Based Repayment (IBR Plan)
Pay As You Earn Repayment (PAYE Plan)
Revised Pay As You Earn (REPAYE Plan)
Income Contingent Repayment (ICR Plan)
The Standard Repayment Plan is the most popular plan for federal student and parent loans. It is a level payment plan, with up to 120 fixed monthly payments during a repayment term of up to 10 years. But many borrowers find that it is not always affordable due to high student loan balances or lower incomes relative to student debt.
An IDR plan can provide your the debt relief that you need. Instead of setting monthly payments according to your student loan balance, the amount due is relative to your income. It is intended to make your payments affordable while taking income and family size into account.
There are four IDR plans that set your monthly student loan payment at a percentage that ranges from 10-20% of your discretionary income. Your discretionary income is calculated by finding the difference between your adjusted gross income and 150% of the annual poverty line for a family of your size and in your state. This means your IDR plan student loan payments are individualized to match your specific income, costs of living, and family size.
- Your monthly IDR plan payments are more manageable since you are extending your loan term from 10 to 20+ years. This allows you pay off your student loan with low income.
- There are adjustments in IDR plan payments when your income or family size changes. You can re-certify your IDR plan when there is a change in income or a new addition to the family. Your student loan monthly payments will be recalculated according to changes. They can be as low as $0 if your financial situation warrants it.
- You can get student loan forgiveness. Depending on when you first borrowed and the IDR plan you choose, you can become eligible for student loan forgiveness after 20 to 25 years of on-time payments. However the forgiven balance will likely be taxed as income for the year in which it’s forgiven.
- You can take advantage of Public Service Loan Forgiveness, if you are eligible. Enrolling in IBR or a similar IDR plan can lower your monthly payments and help you maximize the benefits of this program. PSLF grants student loan forgiveness of any remaining balance after just 10 years of qualifying payments. Loans forgiven through PSLF won’t incur a tax bill, as this is not considered taxable income.
- IDR loans take longer to payoff (20-15 years and get you out of debt versus the typical 10 years on the Standard Repayment Plan.
- The IDR student loan forgiveness is not without cost. Any remaining student loan balance forgiven is considered taxable income. So while you might get a large portion of your remaining balance wiped out, it could come with a sizable tax bill.
- Since you are paying off your IDR student loan for an additional 10 to 15 years, you will likely pay more in interest on the loan. Smaller monthly payments are great for your budget but they can cause you to end up spending more over the life of your loan.
- Your IDR student loan balance could increase if your monthly payments do not cover the interest, due to a very high student loan balance. Instead the unpaid interest is added to your student loan balance and causes it to grow.
- Lots of paperwork is required for a IDR loan. You also need to re-certify your income every year.
- Not all federal student loan borrowers will qualify for or benefit from an IDR. You might be eligible only for certain plans or you might have to consolidate your federal student loans to become eligible for an IDR plan.
- Your income might be too high to qualify for an IDR plan. You will not benefit from an IDR plan if 10 percent of your income is higher than your monthly payment on a Standard Repayment Plan. If you are married, filing a joint tax return, your combined income will be used as a means test for qualifying.
Federal IDR Plan Summary
best if you
|Income Based Repayment||15%||Don’t qualify for PAYE.
Have FFELP student loans.
|Pay As You Earn||10%||Are married with two incomes.
Have graduate loans.
Have low earning potential
|Revised Pay As You Earn||10%||Aren’t married.
Don’t have graduate loans.
Have high earning potential.
|Income Contingent Repayment||20%||Have parent PLUS loans.
Want to reduce payments slightly.
How To Apply For Loan Relief
To complete the application, you will need to provide information about your family size and your most recent federal income tax return or transcript. If you didn’t file taxes, you will need to submit alternate proof of any taxable income earned during the past 90 days.
Your servicer can put your loans in forbearance while processing your application. You are not required to make payments during forbearance. However your loan interest will accrue adding to the amount you owe.