Income-Driven Repayment, Is it right for you ?
Are your Federal student loan payments giving you a headache? Then you might want to consider enrolling in the Income-Driven Repayment (IDR) Plan.
IDR plans can lower your monthly student loan payments. Student loans have the highest interest rates out there combined that with a high balance and your in some trouble, an IDR plan can provide much-needed relief.
Now that your getting a better understanding, you’ll want to be sure you understand IDR plans and how they can affect your finances and student debt. This complete guide to the IDR plan will demystify this option and help you figure out if it is right for you.
Enrolling in IDR plans
Only federal student loans are eligible for IDR plans — not private student loans. The types of federal student loans you have might also have a determining factor on which IDR plans you’re eligible to enroll in.
Since your income is key to how your payments are calculated, you’ll also need to certify your income upon initially enrolling in an IDR plan. Your payments are re-evaluated and recalculated each year, so you’ll need to recertify your income annually to stay on the plan.
You can also recalculate your payments at any time during certain situations such as after a job loss.
How IDR plans lower your monthly costs
The 10-year standard repayment schedule is the default for student loan borrowers, but it’s not always affordable. High student loan balances will mean high monthly payments, which can be tough to keep up with.
An income-driven repayment (IDR) plan could help you cut your monthly payments drastically, tying the amount you have to pay to the amount you earn, which can help you handle your debt a lot easier. Let’s review the details to see how income-driven repayment works.
According to Federal Student Aid, such a plan is intended to make your payments affordable while taking income and family size into account.
Specifically, IDR plans set payments at a percentage of your discretionary income. For example, IBR sets payments at 10% to 15% of your discretionary monthly income, depending on when your loans were disbursed. Additionally, on July 1, 2028, the Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans will end as SAFE did, at which point the Income-Based Repayment (IBR) plan will be the only “old” IDR plan available. These borrowers can also continue to select the original Standard, Graduated, and Extended plans. Borrowers enrolled in ICR or PAYE will be notified in 2028 when they need to select another plan.