When you are deciding to pursue higher education, chances are, you have had to consider some form of student loans to be able to pay for school. Student loans help you to achieve your educational goals without having to worry about paying upfront. While this can serve as an enormous benefit to many, student loans often become a major part of your postgraduate life.
Understanding the unique timelines associated with paying off your loans can be confusing, as it is different for everyone. There are multiple options for paying back your student loans, and it is important to understand which types of loans are eligible for forgiveness programs. Federal loans are provided to students from the U.S. Department of Education under the William D. For Federal Direct Loan (Direct Loan) Program. There are four types of federal loans available:
Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans and Direct
Consolidation Loans. Each type of Direct Loan varies in what type of student they are eligible to and whether they are based on financial need.
In addition to federal student loans, there are state loans available that differ state by state. Depending on the state, and the type of loan you may have received, there are various options for repayment and potential loan forgiveness. To find out if you qualify for any of your state’s student loan repayment programs, take a look at your state government’s Department of Education page.
Lastly, there are also private loans – these loans are not subsidized nor need-based and require a cosigner. A cosigner will take on the responsibility of repaying your loans in the event you fail to do so.
After you’ve identified the kinds of student loans you have, you can begin to learn about the various loan forgiveness options available. Your eligibility for loan forgiveness plans is based on your career or income.
Career-Based Student Loan Forgiveness Plans
There are two main career-based forgiveness plans for your federal student loans: the Public Service Loan Forgiveness (PSLF) program, and the Teacher Loan Forgiveness program. The PSLF program forgives the remaining balance on your student loans after you have made 120 qualifying monthly payments (10 years) under a repayment plan while working full-time. This loan applies to any individual employed by a government or nonprofit organization.
The Teacher Loan Forgiveness program applies to full-time teachers who have completed five years consecutive experience teaching in a low-income elementary school, secondary school, or educational service agency. Those who qualify for this program can be forgiven for up to $17,500 of their remaining Direct Loan balance.
Income-Driven Loan Repayment Plans
In addition to career-based loan forgiveness plans, the other main student loan repayment and forgiveness programs are income-based repayment plans. Most federal student loans are eligible for at least one of these plans. An income-driven plan sets your monthly student loan payment at an amount determined based off your income and family size. If your income is low enough, you can pay as low as $0 per month on your student loans. There are four types of income-based repayment plans: Revised Pay As You Earn (REPAYE) Plan, Income-Based Repayment (IBR) Plan, Pay As You Earn (PAYE) Plan, and Income-Contingent Repayment (ICR) Plan.
Revised Pay As You Earn
The Revised Pay As You Earn (REPAYE) Plan payments are typically based on 10% of your discretionary income. The REPAYE Plan requires 20 years of payment if all your loans were received for an undergraduate student. For graduate or professional students, 25 years of payment is required. Any student with eligible federal student loans can make payments under the REPAYE plan.
Income-Based Repayment
The Income-Based Repayment (IBR) Plan payments are generally 10% of your discretionary income if you are a new borrower and does not exceed the 10-year Standard Repayment Plan. If you borrowed your first student loans on or after July 1, 2014, you are required to make payments for 20 years. If you borrowed before that date, your loans will be based off 15% of your discretionary income, and you are required to make payments for 25 years. Students who would pay less under PAYE or IBR plan rather than the Standard Repayment Plan 10-year period are eligible for either of these repayment programs.
Pay As You Earn
Similar to REPAYE, the Pay As You Earn (PAYE) Plan payments are based on 10% of your discretionary income but will never exceed more than the 10-year Standard Repayment Plan amount. Students who use the PAYE plan are required to make 20 years of payment, regardless of your level of education. To qualify for the PAYE plan, students must have no outstanding federal loan balances when they received a federal loan on or after October 7, 2007.
Income-Contingent Repayment (ICR) Plan
The Income-Contingent Repayment (ICR) Plan bases payments off of 20% of your discretionary income, or what you would expect to pay on a repayment plan with a fixed payment over the course of 12 years, adjusted to your income – the lesser of these two options is what you can expect to pay monthly. Students who use the ICR plan are expected to make 25 years of payments. Any student with eligible federal student loans can make payments under the ICR plan.
When Will Your Loans Be Forgiven?
Depending on your repayment plan, you are required to make qualifying payments under the determined amount of time. Under all four plans, any remaining balance you have after your repayment period will be forgiven. Additionally, any periods of economic hardship deferment, periods of repayment under certain other repayment plans, and periods where your payment amounts to zero all count towards your total required repayment period.
There are some students who no longer have a balance at the end of their payment period to be forgiven. This can be a result of your income rising quickly over a few years, or the amount of other debts and financial obligations you must take care of aside from your loans. While in your loan repayment period under any of these plans, it is important to ensure you are making payments on time and paying the full amount until you have confirmed you are no longer obligated to make payments.
