3 things you should know about income driven repayment plans
Updated on December 11, 2020
Your family’s income is a big consideration when it comes to deciding on what type of student loan repayment option works best for you. For this reason, many borrowers consider income-driven repayment plans. The monthly payments in these options are based on your specific circumstances and can be a budget-friendly option, but there are a few important things you should know before choosing an income-driven repayment plan.
1. Payments may change yearly
When considering income based plans, you have a few options to choose from, each with its own unique terms. With each, you must recertify yearly to determine your payment amount, sharing your current salary, family size, and other information with the lender. It is important that you remember to recertify on time each year, or you may lose the option to participate in income driven repayment plans.
2. Repayment is based on discretionary income
Your actual payment amount with an income driven repayment plan will not be based solely on your paycheck, but instead on the amount of discretionary income in your household. Household size, state of residence, and income amount are calculated and compared against the Federal Poverty Level Guidelines to determine what percentage of your income is considered “discretionary”. Payments will be a set percentage of that amount, up to a maximum amount.
3. Loans can take longer to pay off
Due to the varying amount of payments, these student loans can take longer than the standard 10 years to pay off. In many cases, borrowers find themselves continuing to pay off their loans 20 years or more down the road. Those who want to get out from under their student loans quickly may want to consider a different type of repayment plan with a set monthly payment.
Choosing the best method of student loan repayment for your personal situation can take a bit of research. Income driven student loan repayment plans are a great option for many, but should be carefully considered to determine whether they will be a good fit for reaching your financial goals in the long term. Contact a knowledgeable advisor with expertise in student loans to help you take the right steps toward managing your student loan debt.