Student Loan Repayment Options
Consolidating your Federal Student Loans gives you a few different Student Loan Repayment options. For some basic information on them, you can see our FAQ. This page is designed to explain how the calculations are made, and also to assist you on when it may be wise to choose one repayment plan over another. Each has their benefits, and we here at Global Student Loan Forgiveness let our clients make the final decision as to which option they think will benefit them the most in the short and long term. The four repayment plans are the Standard Repayment, Graduated Repayment, Income Contingent Repayment, and finally, the Income Based Repayment.
Income Based Repayment
The Income Based Repayment plan is by far the most unique re-payment plan in the federal direct loan program, and often the most beneficial. There are many benefits to the program, one of which is forgiveness on the first three years of any unpaid interest from when you enroll into the Income Based Repayment plan for the subsidized portion of your loan. For those with very low, or no income, this works out to be a great form of “instant forgiveness” on their loans because otherwise this interest would be due. For example, someone with a loan amount of $40,000 and an interest rate of 6.8% would have $8,160 of interest forgiven in their first three years from when their Income Based Repayment begins. This is assuming you qualify for a zero payment. If your payment is not zero, it is likely you are not completely paying off the monthly payment, and receiving forgiveness on the difference. Another benefit of the Income Based Repayment is that it offers, typically, the lowest payment for borrowers in financial hardship. The amount of your payment can never exceed 15% of your adjusted gross income over the poverty line for your family size. If you are married and file jointly, your spouse’s student loan indebtedness can be taken into account that can further lower your payment. You may want to take advantage of an Income-Based Repayment if:
- You are having a financial hardship and would like some breathing room
- You qualify for a payment of zero or payment of less than the monthly interest payment on the loan. This will allow for that interest to be forgiven on the first three years
- You do not see a large increase in you income in the future, and see yourself always qualifying for a zero payment at which case your student loan would be completely forgiven at the end of the term.
The calculation for the Income Based Repayment is AGI – (Poverty Line x 150%) = Y (Y x .15) / 12 = IBR PAYMENT If you would like to see what your income based repayment could be, click here. For additional information regarding the Income Based Repayment Plan call us at 1-844-832-7070.
In the standard repayment plan, the payment on your loan is calculated like any normal loan payment, based up the size of the loan and also the term of the loan. The term is always based on the size of the loan, in which case you can use the chart below. Depending on your income and family size, the standard repayment plan can be a good option for you if
- You want to pay off the loan as soon as possible and currently have less than 30 years left on the term
- You do not qualify for an income-based repayment plan because of your higher income.
- Your loan amount is small enough where you can be paying a minimal amount over a short period rather than extending it for an additional X amount of years.
The standard repayment plan allows you to take care of your loans on time if you are making regular and full payments on them. You will pay less interest on a standard repayment plan than you will under the graduated. Often customers that do not qualify into either of the Income Based Repayment plans do not see a benefit of consolidating their loans into a Standard Repayment plan when their current payment can be nearly the same. This often is misguided as one of the major benefits of this consolidation is the flexibility with the repayment plans. If you come under hardship in the future, at any moment you can call us here at Global Student Loan Forgiveness 1-844-832-7070, and we will change your repayment plan to an Income Based Repayment plan. What this does for you allow you to have then a payment based on your income, which may prevent you from falling into default on your loans. In many cases, your payment can roll to zero on your loans. This is not a deferment status, which essentially pauses your term. You would have a zero payment for however long your hardship lasts, and the term continues to move forward. This is where the forgiveness aspect plays a large roll. Once your term is over your loan is completely forgiven. This is a huge benefit to the program that is often overlooked by our clients until we explain to them this benefit.
Graduated Repayment Plan
The graduate repayment plan is similar to the standard repayment plan in its calculation, but the major difference is that for the first few years under the graduated plan you are only paying interest on the loan. For this reason, the graduated plan, in the beginning, is always less than the standard repayment plan. You start off only paying interest on the loan and after every two years, your payment increases. The term of the loan is the same as the standard and is based on your loan amount. You may want to choose the graduated plan if:
- Your income is high enough where the Income Based reprograms do not make sense for you, or you may not even qualify for them
- You want to have a slightly lower payment right now, knowing that your payments will slowly increase every two years until the loan is paid off.
- You expect your current job to have normal and regular pay raises and expect to be able to pay the increase of the payment every couple years without it putting undue hardship on yourself and your family.
One of the drawbacks of the Graduated Repayment Plan is that the total amount you will pay on the loan will be more than a standard repayment. This is because you are only paying off the interest for the first two years, and even into years 3-4 you may not be paying off the principal as fast as you would be in a normal amortization schedule. Thus, you are left paying more through the life of the loan with the benefit being lower payments to start off. Its also important again to stress the Forgiveness aspect of the loan. If at any time you cannot make the payments due to a job loss, or loss of income, Global Student Loan Forgiveness can have your repayment plan changed for you so you do not suffer the hardship of making payments you cannot afford. During this time, your term would continue with a significantly lower payment, and at the end of the term, the loan would be completely forgiven. The calculation for the graduated repayment is: PMT = (Loan Amount * Interest Rate) / 12
Income Contingent Repayment
The Income Contingent Repayment plan uses a couple of income based factors to determine what your payment will be during your Student Loan Repayment. The Income Contingent Repayment plan calculates your payment two different ways, and then gives you the lower of the two payments. One calculation is your Adjusted Gross Income(AGI) over the poverty line for your family size, multiplied by 20% for an annual payment (divide by twelve for a monthly payment). This calculation does not take the loan size into account at all.
- Payment = ((AGI – Poverty Line) x 20%) / 12
The second calculation does use your loan value, and income factor determined by the federal government, and a constant multiplier also determined by the federal government. Then these are used to calculate your payment for the second method. Whichever of the formulas gives you the lower payment is used, and the other is disregarded. You may benefit from an Income Contingent Repayment Plan if:
- You are suffering a financial hardship and need relief
- You do not see having a higher income in the future and would like to be eligible for student loan forgiveness. Under this repayment, it is not expected that at the end of the term will be paid off, so loan forgiveness is likely.
Understanding Student Loan Repayment Programs
Many student loan borrowers are going to have to restructure their repayment plans this year. The Department of Education offers many different loan repayment options to help make payments more manageable. If this includes you, one of the most popular repayment programs to apply for is Income Based Repayment.
Benefits Of the Income Based Repayment
First, your payment is based on what you earn. What you owe is not considered except to determine the extent of the financial hardship. The new monthly payment amount will not be higher than 10 percent of your discretionary income if were a new borrower on or after July 1st 2014. If you had loans prior to this date, then 15% of your discretionary income is used to calculate your payment. This is the amount of income you earn over 150% of the federal poverty line for your family size. This payment will not be higher than what you were paying under the standard 10 year repayment plan. In many cases, borrowers in the Income Based Repayment Program actually “pay” zero Dollars if their discretionary income isn’t high enough to meet the minimum amount. This is great for those who exit college with a huge loan balance and are hit with payments they cannot afford while looking for work, for example.
Qualifying Loan Types
Eligibility for Income Based Repayment depends on which loans you have taken out for your education, and when they were taken out. The following Federal Student Loans from the Direct Loan and Federal Family Education Loan (FFEL) Programs are the ones that qualify for application:
- Direct PLUS Loans (Graduate and Professional Students)
- Direct Consolidation Loans without PLUS Loans that were made directly to parents and not just as cosigners.
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- FFEL PLUS Loans (Graduate and Professional Students)
- FFEL Consolidation Loans without PLUS Loans that were made directly to parents and not just as cosigners.
If you do not have one of these loan types, you may still be eligible for the IBR by consolidating your federal student loans into the Direct Loan program. You can call 1-844-832-7070 to talk to a company specialist focused on assisting borrowers & students.
Annual Recalculation of Payment
Interested applicants need to keep in mind that although there is no minimum payment with an Income Based Repayment Loan, the amount is recalculated every year. In addition to the criteria listed in the first benefit, family size and changes to income (including a spouse) will alter the required amount. This annual recalculation in the monthly payment depends on when the loan program was started. Income increases, a new spouse, having a child or getting laid off will definitely change your monthly payment either up or down. The good news is that if your income rises dramatically, you can change your repayment plan into a standard repayment at any time you choose.
Forgiveness At End Of Term
Fourth is the 20 year forgiveness for new borrowers that took their loans out after July 1st 2014, or 25 years if the loans were taken before that date. The lifetime of an Income Based Repayment Loan is considered to be no more than 25 years. If over the lifetime of this loan, you make 300 qualified payments and the loan is still not completely paid off, any remaining loan amount will be forgiven and legally discharged.
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While the Income Based Repayment, Program is not an easy one to apply and qualify for, it certainly beats defaulting on your responsibilities and having that black mark on your credit report for many years to come. The benefits under this Income Based Repayment program are extensive and designed specifically to help individuals and families in financial need while ensuring that the Federal Student Loan Program stays healthy and available for future students. If you think this may be an option that can be good for you and need assistance, call (844)-832-7070 for more information.
Pay As You Earn Repayment Plan (PAYE)
The Pay As You Earn Repayment Plan or PAYE is a lesser known Loan Repayment program that was passed by President Obama on December 21st, 2012 and was his first piece of legislation to assist those with federal student loans. Currently, PAYE only applies to federal student loans that were disbursed on or after Oct. 1, 2007, and you must not have had a balance on a Direct Loan or FFEL loan when you received the loan after Oct. 1st, 2007. However, President Obama plans to issue an executive order this year that extends the application process to loan holders who began receiving federal student loans before that date as well. As with the Income Based Repayment option, applicants must prove at minimum Partial Financial Hardship as defined by the Department of Education.
Specific requirements are as follows:
- The only eligible federal loans are Direct Subsidized and Unsubsidized for Undergraduates and Direct Plus for Graduates and Professionals. Please note that this does not include Direct Plus Loans issued to parents.
- Applicants must prove Partial Financial Hardship. This includes not just income, but number of family members and their income as well.
- You must be a new borrower as of Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. You are a new borrower if you had no outstanding balance on a Direct Loan or FFEL Program loan when you received a Direct Loan or FFEL Program loan on or after Oct. 1, 2007.
- If approved, applicants will see their loan payments capped at 10% of their income that exceeds 150 percent of the Federal poverty line. The specifics are detailed in the chart.
Pay As You Earn (PAYE) Monthly Calculator
Monthly Adjusted Gross Income
(minus) 150% of Poverty Line (1)
Monthly PAYE Payment
(1) Determined annually and based on federal poverty guidelines.
Reduced Term & Student Loan Forgiveness
All of these factors are recalculated annually in order to determine the most fair repayment amount for every applicant. If approved, graduates enrolled in the PAYE program have up to 20 years to repay their debt. After 20 years of qualified monthly payments have been made, any remaining debt on the student loans would be forgiven or discharged. Potential applicants should know that all discharged loan amounts are still considered by the IRS as income and will be taxed accordingly. Because of this, PAYE is considered one of the more generous repayment programs that offers the lowest payment on your federal student loans.
Changes To The PAYE Repayment Plan
- Eliminate the standard payment cap under PAYE so that high-income, high-balance borrowers pay an equitable share of their earnings as their income rises.
- Cap Public Sector Loan Forgiveness (PSLF) for undergraduate students at the aggregate loan limit to protect against institutional practices that may increase student indebtedness, yet ensure the program continues to provide sufficient relief for students committed to public service.
- Extend the loan period to 25 years for borrowers with balances above the aggregate loan limit.
- Prevent payments made under non-income driven repayment plans from being applied toward PSLF to ensure students with the greatest need are considered first for loan forgiveness.
- Cap the amount of interest that is allowed to continue calculating when a borrower’s monthly payment is not enough to prevent ballooning loan balances.
- Calculate payments for married borrowers who file separately on the combined household Adjusted Gross Income.
Although PAYE may be the most generous repayment option, not every applicant is going to qualify for it. Even with approved changes in President Obama’s executive order, it does currently still restrict benefits against those students with high loan balances and those who choose to pursue a public service career. If you do not believe that you will qualify or that it may not be the best option for you can call 1-844-832-7070 to talk to a company specialist focused on assisting borrowers & students.
Revised Pay As You Earn Payment Plan (REPAYE)
In December 2015, the Department of Education created REPAYE (Revised Pay As You Earn) as an extension of the current PAYE program. REPAYE was designed to remove some of the restrictions imposed by previous IDR plans while adding some additional benefits.
Revised Pay as You Earn
REPAYE, the newest income drive repayment program! For those eligible, there are some great benefits that were not previously available to many borrowers, such as:
- The potential for lower payments than IBR (Income Based Repayment Program)
- Earlier loan forgiveness for some than IBR
- Expanded eligibility versus PAYE (Pay as You Earn)
Basic overview of the REPAYE program:
- REPAYE is all-inclusive to those with direct federal student loans
- There are NO date restrictions for eligibility based on when you took out your loans
- There are NO minimum income requirements
- Monthly payments are always capped at 10% of your income
- Undergraduate student loans are forgiven after 20 years
- Graduate school loans are forgiven after 25 years
- Combined undergraduate and graduate student loans are forgiven after 25 years
- A government subsidy is included which covers unpaid interest accrued each month for the first three years, and HALF the accruing interest afterward (this is on subsidized loans only)
Basically, if you are filing Single or Married Joint, and you qualify for IBR, but not PAYE, you now are probably a fit for REPAYE. This program caps your monthly loan payment to 10% of total income, with no minimum income requirement. This monthly payment is calculated at 10% above your cost of living allowance for your AGI and Family Size, then divided by 12 months.
Since traditional IBR payments are calculated at 15% above your cost of living allowance, the REPAYE program payment would be 33% lower than IBR.
Most government plans that tie your monthly payment amounts to your income require you first to demonstrate that you cannot afford the 10-year standard repayment plan. This is not a requirement for REPAYE. So regardless of your income, your payments will never exceed 10% of that figure.
Unlike PAYE, Date restrictions have also been eliminated, allowing many older borrowers to enjoy the advantages of REPAYE as well.
However, unlike the PAYE program, REPAYE treats undergraduate and graduate school student loans a little differently. While undergraduate loans are forgiven after only 20 years, graduate school loans are extended to 25 years. But, if you’re repaying even one student loan that you received as a graduate student, you will be repaying both the undergraduate and graduate loans for up to 25 years.
As you can see, the REPAYE program has removed as many restrictions as possible to now include the largest number of borrowers that were previously ineligible.
One thing to note with REPAYE is that your payment amount is NOT capped at what your Standard repayment monthly repayment would be. This means that if your income gets high, your REPAYE payment could be higher than your standard repayment would have been.
Why was the REPAYE program introduced?
REPAYE was introduced for three reasons:
- To remove the date restrictions that made many borrowers ineligible.
- To remove previous income level requirements
- To restrict the rapidly accumulating interest on previous IBR and PAYE participants after the first three years
Previous IBR borrowers who took out loans before 7/1/14 had their payment capped at 15% of total income for 25 years, while those who took out loans after that date were capped at 10% for 20 years. PAYE borrowers weren’t eligible if they took out loans before 10/1/07 but otherwise had all payments capped at 10% for 20 years…
Thankfully, REPAYE greatly simplifies this process.
Who is eligible for the program?
REPAYE is available to all undergraduates and graduate school borrowers with direct federal student loans.
One of the drawbacks of the PAYE program was that anyone who took out student loans before October 2007 was ineligible to participate. REPAYE removes that barrier completely. With REPAYE, there is no time requirement to participate. Whether you took out student loans 20 years ago or yesterday, you are now eligible for the REPAYE program.
There are only three restrictions for being eligible for the REPAYE program:
- You don’t have direct federal student loans
- Your income is too high, and the repayment plan rolls you into an ICR plan
- You have Parent Plus loans
As long as the three criteria above don’t apply to you, you are eligible for the REPAYE program.
In short, REPAYE offers numerous new benefits to student loan borrowers and can potentially help borrowers manage their student loans better than ever before. (Just remember that REPAYE, like all income-driven plans, still requires you to re-certify your income every year to remain in the program!) We hope this has been a helpful guide to getting you familiar with the new REPAYE program so you can decide if it’s the right fit for you.
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While the Income Based Repayment, Pay as You Earn, & Revised Pay as You Earn Programs is not an easy one to apply and qualify for, it certainly beats defaulting on your responsibilities and having that black mark on your credit report for many years to come. The benefits under the Income Based Repayment, Pay as You Earn, & Revised Pay as You Earn programs are extensive and designed specifically to help individuals and families in financial need while ensuring that the Federal Student Loan Program stays healthy and available for future students. If you think this may be an option that can be good for you and need assistance, call Global Student Loan Forgiveness at (844)-832-7070 for more information.