What is the repayment schedule relative to income?


The U.S. Department of Education offers several options for student loan borrowers who cannot afford the standard 10-year repayment plan. The Income-Based Repayment Plan lowers your monthly payment based on your income and family size and is the only income-based repayment plan available to Parents PLUS borrowers.

Income-linked repayments can make monthly payments more manageable for many borrowers, but it's not the right choice for everyone. Here's what you should know about the program and whether it's the best student loan fit for you.

For income contingent repayment plans or ICR plans, the amount you owe is the lesser of:

20% of your discretionary income. The amount you will pay for a 12-year fixed repayment plan, adjusted for your income. The payment term under the ICR scheme is 25 years. If you have any remaining credit after this time, it will be forgiven.

Who is eligible for the Income or Have Repayment Plan? You may be eligible for the ICR program if you have the following eligible federal student loans:

Direct unsubsidized and subsidized loans. Direct Consolidation Loans.

Direct PLUS loans (borrowed from graduating or working students). You can also participate in the ICR program if you first consolidate nonqualified loans (including Parent PLUS loans, FFEL program loans, and Perkins loans) into direct loans. However, if you have private student loans or federal student loans that are in default, you are not eligible.

It's worth noting that income-related repayment is the only forgiveness program available to borrowers on Parent Plus loans (after combining eligible student loans). Other income-based repayment plans do not accept Direct Consolidation Loans for repaid Parents PLUS loans.

How to Calculate Amortization Payments Related to Revenue For many borrowers, the monthly repayment under the ICR plan is 20% of their discretionary income.

Annual Income – 100% of State Poverty Level and Family Size = Disposable Income Next, calculate 20% of your discretionary income to determine your monthly payment.

If your income or household size changes, your payment may also change. If you participate in the program, you must re-certify your income each year. Since the ICR program has a 25-year payback period, there are many opportunities for change. However, you cannot spend more than you would pay under a fixed repayment plan (based on your income) with a 12-year repayment period.

Income-Based Repayments vs. Income-Based Repayments An income-based repayment plan, or IBR plan, is another popular student loan forgiveness option. While there are some similarities between an income contingent repayment plan and an income contingent repayment plan, it's also important to understand the differences when trying to figure out whether either option is right for you.

Is income or having a repayment plan right for you?

Income-related repayment plans are one of the least popular income-related repayment options because you pay a larger percentage of your discretionary income each month than most other plans. However, if you are a parent looking for lower repayments, the ICR program is the only income-tested repayment program that accepts Parent PLUS loans (consolidated).

Your student loan administrator can sum up the numbers to help you decide which income-related repayment plan is best, but it's best to do your research and calculations too. You can use Federal Student Aid's free loan simulator tool to compare multiple options.

If an income-based repayment plan is not suitable, you may consider other solutions. For example, student loan refinancing might be worth a look. Refinancing your student loans through a private lender will cost you valuable government student loan benefits. However, you can also save money if you qualify for a lower interest rate.

The bottom line An income-tested plan requires you to use more of your discretionary income to make payments than an income-tested repayment plan. However, it's still the best plan for your needs. Income-based matching might make the most sense if you want to pay off your loan as quickly as possible and can't afford the standard plan. It is also the only income-based program available to those with Parent PLUS loans.

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