If you graduated recently, you’re gearing up to launch your career and start a new chapter of your life. But graduating may also mean it’s time to start paying back your student loans, which is less exciting.
If you have unconsolidated federal student loans, you are likely signed up for the standard 10-year repayment plan. Upon graduation or once your grace period ends, you begin making payments in order to pay back your loans in 10 years.
Many grads will not make tons of money right out of the gate, of course, and that can make paying off student loans at the beginning of a career challenging. If your loan payments with the standard plan are high in proportion to your income, an income-based repayment plan might be an option.
apply and submit information to have your income certified. Your monthly payment will then be calculated.
If you qualify, you’ll simply make your monthly payments to your loan servicer under your new income-based repayment plan.
You’ll have to recertify your income and family size yearly. Your calculated payment may change as your income changes.
What Might My Payment Be?
Qualifying for income-driven repayment depends on your income—specifically how much of your discretionary income goes toward student loan payments.
For the IBR, PAYE, and REPAYE plans, the required monthly payment is generally a percentage of your discretionary income. (Discretionary income is the difference between your adjusted gross income and 150% of the poverty guideline for your family size and state of residence.)
For the IBR plan, the monthly payment is 10% of discretionary income for someone who borrowed on or after July 1, 2014. If a student took out loans before that date, the monthly payment is 15% of discretionary income.
Under the PAYE and REPAYE plans, the monthly payment is 10% of discretionary income.
• You are single and your family size is one. You live in one of the 48 contiguous states or the District of Columbia. Your adjusted gross income is $40,000.
• You have $45,000 in eligible federal student loan debt.
• The 2021 HHS Poverty Guideline amount for a family of one in the 48 contiguous states and the District of Columbia is $12,880, and 150% of that is $19,320. The difference between $40,000 and $19,320 is $20,680. This is your discretionary income.
• If you’re repaying under the PAYE or REPAYE plan or if you’re a newer borrower with the IBR plan, 10% of your discretionary income is $2,068. Dividing that amount by 12 results in a monthly payment of $172.33.
Under the ICR plan, the monthly payment will be the lesser of 20% of discretionary income or the amount a borrower would pay under a standard repayment plan with a 12-year repayment period, adjusted using a formula that takes income into account.
For the ICR plan, discretionary income is the difference between adjusted gross income and 100% of the federal poverty guideline amount for your family size and state.
The Federal Student Aid office recommends using its loan simulator to compare estimated monthly payment amounts for all the repayment plans.
Which Loans Pertain to Which Plan?
Most federal student loans are eligible for at least one of the plans. For the details, see this Federal Student Aid chart .
Private loans are not eligible for any federal income-driven repayment plans—though some private loan lenders will negotiate new payment schedules if needed.
Potential Drawbacks of Income-Driven Repayment
Income-based repayment usually lowers your monthly payment, but stretching payments over a longer period means probably paying more in interest over time. In some cases, your minimum payment might not even cover all the interest on your loan.
Even if income-based repayment makes sense for you, you’ll need to recertify your income and family size every year.
consider refinancing instead. With refinancing, a private lender pays off loans with a new one, hopefully with a lower interest rate.
You can calculate how much you might save by refinancing your student loans with SoFi’s student loan calculator.
Maybe your income doesn’t qualify you for an income-driven repayment plan. If not, consider refinancing with SoFi.
You can refinance both private and federal student loans. Just realize that refinancing federal student loans with a private lender renders them ineligible for federal repayment plans, but if you don’t plan to use those benefits, refinancing might be a good option.
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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
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