There are 7.37 million federal student loan borrowers who are enrolled in income-driven repayment plans, according to the U.S. Department of Education. While this may sound like a lot of people, and it is, it represents just 17% of the 42.8 million total federal student loan borrowers.
If you're making standard monthly payments, or are participating in the extended, graduated, or extended graduated repayment plans, here's why you might want to seriously consider applying for income-driven repayment, even if you don't think you need it or will qualify.
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The benefits of income-driven repayment
It's not difficult to see why income-driven repayment is so popular. For one thing, it keeps your student loan payments as low as possible while you still get credit for making full monthly payments.
In other words, if you anticipate eventually qualifying for Public Service Loan Forgiveness (PSLF), which requires 120 monthly payments, the payments you make under an income-driven repayment plan will count. Certain other repayment plans designed to keep your payments low, such as the extended and graduated repayment plans, don't count towards PSLF.
Speaking of loan forgiveness, even if you don't anticipate being eligible for PSLF, it's important to mention that if you repay your loans under an income-driven plan, any remaining balance is automatically forgiven after paying for 20 or 25 years under the plan. I'll get into the specifics in the next section, but the point is that if you're concerned about "paying your student loans forever," there's a definitive time limit to how long you'll pay under income-driven repayment plans.
Four income-driven repayment plans
There are currently four income-driven repayment plans that you can qualify for. Most borrowers will find that they fit under one of the first two on this list, but here's a rundown of all four:
Pay As You Earn (PAYE): This plan typically results in the best terms for borrowers who qualify. Under the PAYE plan, your payment is capped at 10% of your discretionary income and any remaining balance is forgiven after a 20-year repayment period. However, to qualify for PAYE, you must have been a new student loan borrower after Oct. 1, 2007 and must have received at least one loan disbursement after Oct. 1, 2011.
Revised Pay As You Earn (REPAYE): Simply put, the REPAYE plan was designed for borrowers who didn't qualify for PAYE. In full disclosure, this is the student loan repayment plan that I'm on. Under REPAYE, the borrower's payment is limited to 10% of his or her discretionary income. Loans can be forgiven after 20 years of repayment, but if any of the loans were taken out for graduate study, the repayment period before loan forgiveness is extended to 25 years.