Federal Student Loan Relief

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.

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)

INCOME BASED REPAYMENT (IBR PLAN)

Income-Based Repayment Plan (IBR) is an option regardless of when you received your loans. It’s similar to the PAYE plan but offers more flexibility.

To qualify, your projected IBR payments must be lower than the Standard Repayment Plan and you must demonstrate financial need based on your income.

Payment amount is either 10 or 15 percent of your discretionary income, depending on the date of the first loan. The 10 percent amount is for new borrowers who didn’t borrow from the Direct Loan Program or FFEL Program until July 1, 2014, or later. The 15 percent amount is for everyone who began borrowing before that date.

Repayment period is either 20 to 25 years. It is a 20-year term for new borrowers on or after July 1, 2014 and 25 years for everyone else.

Pros:  It lowers your monthly payments.  Your loans are eligible for forgiveness if you carry a balance after the repayment period is complete.

Cons:  You can end up paying more in interest over time. If your loans are forgiven, the forgiven amount might be considered taxable income.

Eligible loans:

  • Direct Loans (both subsidized and unsubsidized)
  • Direct PLUS Loans made to graduate or professional students (parent loans not eligible)
  • Direct Consolidation Loans that didn’t repay PLUS Loans made to parents
  • Federal Stafford Loans (both subsidized and unsubsidized)
  • Federal Family Education Loan (FFEL) PLUS Loans made to graduate or professional students (parent loans not eligible)
  • FFEL Consolidation Loans that didn’t repay PLUS Loans made to parents
  • Federal Perkins Loans (if consolidated)

Pay As You Earn Repayment (PAYE Plan)


Pay as you earn repayment (PAYE Plan)

Pay As You Earn Plan (PAYE) is one of the newest income-driven repayment plans to help borrowers manage their student loans. It is similar to IBR but has stricter requirements.

To qualify, your projected PAYE payments must be lower than the Standard Repayment Plan and you must demonstrate financial need based on your income. You must also be a new borrower as of Oct. 1, 2007 and have received a disbursement of a Direct Loan on or after Oct. 1, 2011.

Payment amount is 10 of your discretionary income.

Repayment period is 20 years.

Pros: It offers the lowest payment amount for all eligible borrowers. The loans are eligible for loan forgiveness after 20 years.

Cons: You must be a new borrower to qualify. Forgiven loans might be considered taxable income.

Eligible loans:

  • Direct Loans (both subsidized and unsubsidized)
  • Direct PLUS Loans made to graduate or professional students (parents loans  not eligible)
  • Direct Consolidation Loans that didn’t repay PLUS Loans made to parents
  • Consolidate Federal Stafford Loans (both subsidized and unsubsidized)
  • Consolidated FFEL PLUS Loans made to graduate or professional students (parents loans not eligible)
  • Consolidated FFEL Consolidation Loans that didn’t repay PLUS Loans made to parents
  • Consolidated Federal Perkins Loans

Revised Pay As You Earn (REPAYE Plan)

Revised Pay As You Earn Repayment (REPAYE PLAN)

Revised Pay As You Earn Plan (REPAYE) is the newest income driven repayment plan to help borrowers manage their student loans. It is similar to the PAYE plan, with a few key differences.

Unlike the PAYE plan, you are eligible regardless of when you took out your first federal student loan and you do not have to demonstrate financial need.

Payment amount is 10 percent of your discretionary income.

Repayment period is 20 or 25 years. It’s a 20-year term if all your loans were for undergraduate study. It’s a 25-year term if any of your loans were for graduate or professional study.

Pros: It offers the lowest payment amount for all eligible borrowers. Undergraduate loans are eligible for loan forgiveness after 20 years.

Cons: Borrowers with graduate and professional student loans must make payments for 25 years before qualifying for forgiveness. Your spouse’s income is included in the monthly payment calculation, regardless of tax filing status. Forgiven loans might be considered taxable income.

Eligible loans:

  • Direct Loans (both subsidized and unsubsidized)
  • Direct PLUS Loans made to graduate or professional students (parents loans not eligible)
  • Direct Consolidation Loans that didn’t repay PLUS Loans made to parents
  • Consolidated Federal Stafford Loans (both subsidized and unsubsidized)
  • Consolidated FFEL PLUS Loans made to graduate or professional students (parents loans not eligible)
  • Consolidated FFEL Consolidation Loans that didn’t repay PLUS Loans made to parents
  • Consolidated Federal Perkins Loans

Income Contingent Repayment (ICR Plan)

Income-Contingent Repayment (ICR PLAN)

Income-Contingent Repayment Plan (ICR) is the income-driven repayment plan to help borrowers manage their student loans if you do not qualify for the other plans. It is similar to the REPAYE plan.

The ICR plan does not have an income eligibility requirement. Also it is the only IDR plan under which Parent PLUS Loans qualify after you consolidate them into a direct Loan. This is your only option if you do not qualify for the other IDR plans.

Payment amount is the lesser of the following: 20 percent of your discretionary income or the payment amount on a 12-year fixed repayment plan, adjusted for income. Note: your monthly payment is based on your income and family size and might even be higher than it would be on the Standard Repayment Plan.

Repayment period is 25 years.

Pros: It’s easier to qualify since there’s not an income eligibility requirement. You might be eligible for loan forgiveness once you complete your repayment plan. Parents with Parent PLUS Loans can qualify once they consolidate their loans into a Direct Loan.

Cons: It has the highest potential payment amount of all income-driven plans. Your payment might not be lower than it would be on the Standard Repayment plan. Forgiven loans could be considered taxable income.

Eligible loans:

  • Direct Loans (both subsidized and unsubsidized)
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans
  • Consolidated Direct PLUS Loans made to parents
  • Consolidate Federal Stafford Loans (both subsidized and unsubsidized)
  • Consolidated FFEL PLUS Loans
  • Consolidated FFEL Consolidation Loans
  • Consolidated Federal Perkins Loans

Considerations

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

idr plan
income %
best if you
Income Based Repayment15%Don’t qualify for PAYE.
Have FFELP student loans.
Pay As You Earn10%Are married with two incomes.
Have graduate loans.
Have low earning potential
Revised Pay As You Earn10%Aren’t married.
Don’t have graduate loans.
Have high earning potential.
Income Contingent Repayment20%Have parent PLUS loans.
Want to reduce payments slightly.

How To Apply For Loan Relief

You can apply for income-driven repayment at studentloans.gov or by sending your student loan servicer a paper request form. You can change your student loan repayment plan at any time.

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.

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