How to choose the perfect student loan repayment plan


By Jeremy Sonne

Student Loan payments can be an enormous weight on your shoulders. If you are having difficulties paying your student loans, there are income based payment plans that may be a good choice to lessen that burden. Also consider how student loans affect your credit score.

There are three types of Income-Driven repayment plans offered for federal loans. All three are based on what your discretionary income would be. This is determined as the difference between your income and 150% of the poverty guideline for family and state of residence.

Income Based Repayment Plan

The first income driven repayment plan is the “Income Based Repayment Plan”(IBR). Here, your payment is defined as 15% of your discretionary income detailed above. If you chose this method, you would be paying these loans for 20 years if you are a new borrower (July 1st 2014 on) or 25 years otherwise.

Pay As You Earn Repayment Plan

You may also want to consider the “Pay as you Earn Repayment Plan.” Generally, these payments will be 10% of your discretionary income. This plan will take you 20 years to pay off these loans. To be eligible for this plan, you must be a borrower as of October 1st, 2007.

For both this plan and the IBR, the calculated payment should be less than the standard prepayment plan.

Income Contingent Repayment Plan

Finally there is the “Income-Contingent Repayment Plan” (ICR). In this case, your payment will be 20% of your discretionary income, or whatever you would be repaying on a fixed payment plan over 12 years.

This method will take 25 years to pay your loans. You are eligible for the ICR plan, only if consolidated into a Direct consolidation Loan.

How Your Plan Can Change

Because these methods are income-driven, they can change based on income and family size.

As such, changes in income and/or family size will be provided to your loan services. This could change your monthly payments.

Different Payment Amounts

Under IBR or Pay As You Earn, your monthly payment will never be more than 10-year standard repayment plan.

However, under the ICR plan, the payment will always be based on income, even if the calculated amount is more than the Standard Repayment Plan.

Types of Eligible Loans

Eligible loans for all three plans include Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans.

Direct Consolidation Loans that did not repay any PLUS loans made to parents are eligible for all three plans, but Direct Consolidation Loans that repaid PLUS loans made to parents are eligible for only the ICR plan.

Subsidized Federal Stafford Loans (from the FFEL Program), Unsubsidized Federal Stafford Loans (from the FFEL Program) and FFEL PLUS Loans made to graduate or professional students are eligible for the IBR plan, but only eligible for Pay As You Earn and ICR, if consolidated.

To apply for any of these plans, visit, or go directly through to your lender.

About the Author

Jeremy Sonne is the Director of Account Services at Sonne & Taylor and regularly contributes to Self Lender's blog.

Written on April 20, 2016

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