Current student loan default rates have exceeded 12% of all borrowers, This equates to well over 600,000 borrowers who are not paying their student loans. Given today’s economic situation it not a surprising fact but for many borrowers avoiding a default status is more a matter of not knowing their options. Federal student loans are packaged with not only the option of deferment and forbearance (the ability to postpone payments) but several repayment plans that can be applied to any borrower’s current financial situation.
If you find yourself in a situation where you may be facing the inability to make payments on your federaL student loans, please contact us and find out what options are available to you to avoid this possibility. Defaulting on Federal Student Loans will essentially follow you to your grave.
Listed below are some of the repayment plans that may interest individuals facing default:
Extended Repayment Plan – Payments may be fixed or graduated. Up to 25 years.
- Your monthly payments will be lower than under the 10-year Standard Plan or the Graduated Repayment Plan.
- You’ll pay more over time than under the 10-year Standard Plan.
Revised Pay As You Earn Repayment Plan (REPAYE) – Any Direct Loan borrower with an eligible loan type may choose this plan
- Your monthly payments will be 10 percent of discretionary income.
- Payments are recalculated each year and are based on your updated income and family size.
- If you’re married, both your and your spouse’s income or loan debt will be considered, whether taxes are filed jointly or separately (with limited exceptions).
- Any outstanding balance on your loan will be forgiven if you haven’t repaid your loan in full after 20 or 25 years.
Pay As You Earn Repayment Plan (PAYE) – You must be a new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011.
- Your maximum monthly payments will be 10 percent of discretionary income.
- Payments are recalculated each year and are based on your updated income and family size.
- If you’re married, your spouse’s income or loan debt will be considered only if you file a joint tax return.
- Any outstanding balance on your loan will be forgiven if you haven’t repaid your loan in full after 20 years.
Income-Based Repayment Plan (IBR) – You must have a high debt relative to your income.
- Your monthly payments will be 10 or 15 percent of discretionary income.
- Payments are recalculated each year and are based on your updated income and family size.
- If you’re married, your spouse’s income or loan debt will be considered only if you file a joint tax return.
- Any outstanding balance on your loan will be forgiven if you haven’t repaid your loan in full after 20 or 25 years.
- You may have to pay income tax on any amount that is forgiven.
Income-Contingent Repayment Plan (ICR) – Any Direct Loan borrower with an eligible loan type may choose this plan.
- Your monthly payment will be the lesser of
- 20 percent of discretionary income, or
- the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income.
- Payments are recalculated each year and are based on your updated income, family size, and the total amount of your Direct Loans.
- If you’re married, your spouse’s income or loan debt will be considered only if you file a joint tax return or you choose to repay your Direct Loans jointly with your spouse.
- Any outstanding balance will be forgiven if you haven’t repaid your loan in full after 25 years.
Income-Sensitive Repayment Plan – You’ll pay more over time than under the 10-year Standard Plan.
Your monthly payment is based on annual income. Up to 15 years. (we do do not recommend this repayment plan given the required documentation on an annual basis and the fact the above listed options are much more beneficial in the long term)