What’s An Income-Driven Repayment Plan? | Student Loan Planner


What do you need to know about
income-driven repayment plans? First of all, IDR is not a repayment plan.
IDR stands for the different kinds of income based options that you have to
pay back your student loans. A lot of times when people tell me that they’re on
an income driven repayment plan, that doesn’t actually tell me anything. That’s
kind of like saying that “Oh, I have a shape” rather than saying “Oh I have a
square”, right? So IDR is the broad catch-all category for what the
different options are for paying back your loans based on your income. An IDR
repayment plan is what you need to have to qualify for most kinds of student
loan forgiveness through the federal government. There’s plans not through the
government that you can use to get student loan forgiveness where you don’t
have to pay based on your income, but the typical answer is that you do have to
pay based on your income with the federal government. So the four different
kinds of income driven repayment programs are: ICR, income contingent
repayment. This has been around since 1994. It’s been around for forever. It’s a
very confusing plan. The math is different for this plan in terms of what
you would have to pay, and it usually results in a higher monthly payment than
any of the other kinds of the income driven options.
ICR is really only the best option for somebody who has Parent PLUS
loans, who consolidates their Parent PLUS loans to a direct consolidation loan, and
this new ICR payment, you know, is probably going to be pretty high unless
you’re truly making not a lot of money. So if you’re making twenty/thirty
thousand dollars of just gross income and you have a lot of student debt as a
Parent PLUS borrower, then the ICR program can really be pretty helpful. But
otherwise, it’s one that you should probably avoid. The next program, IBR, is a
15% of your income program and it’s discretionary income, and this is
calculated a little bit differently from ICR. They take your AGI and they subtract 150% of the federal poverty line for
your family size. So with the IBR program you’re going to be paying 15%, which is
still probably too much for your loans, but the IBR program can be very helpful
for people in very unique situations that need to file their taxes
separately, for example need to put their loans in a program where it’s going
to cap the payments instead of something like Revised Pay
As You Earn. So we’ll get into that in a little bit, but the IBR program has been
around since about 2008. The third program I want to talk about is the Pay
As You Earn Program. This program is 10% of your discretionary income. It was
announced at the University of Iowa in the 2012 presidential campaign. The Obama
administration decided to make this available earlier to people, but put
limits on who could use it because of that limited executive authority that
they were using to get people onto this program. So the Pay As You Earn Program
is really something that’s been around since 2013 in terms of being able to
access it, but the Pay As You Earn Program is a 20 year program that you’re paying back your
loans for, it’s really good for people seeking a pure forgiveness strategy on
their loans. The fourth and final kind of IBR- IDR program that I wanted to talk
about, see how I messed up there? IDR is income driven repayment, that’s the broad
category of these programs, IBR is an actual specific repayment program. So the
fourth kind of IDR repayment option that I want to tell you about is Revised
Pay As You Earn. REPAYE is what it’s also commonly
called. REPAYE is something that’s available to anyone with direct loans,
and you pay ten percent of your income and your loans can be forgiven in twenty
five years if you don’t pay the full thing off. The Revised Pay As You Earn Program
comes with interest subsidies that cover a portion of your interest.
It covers half of all your unpaid interest every month. So that’s pretty
cool. Really great option for people that plan to eventually refinance but are not
quite there yet. Those are the four kinds of income driven repayment programs. Hope
you learn something, and if you have questions reach out to [email protected]

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