Income Based Repayment Plan | Student Loan Forgiveness
Many student loan borrowers are going to have to restructure their repayment plans this year. The Department of Education offers many different loan repayment options to help make payments more manageable. If this includes you, one of the most popular repayment programs to apply for is Income Based Repayment.
First, your payment is based on what you earn. What you owe is not considered except to determine the extent of the financial hardship. The new monthly payment amount will not be higher than 10 percent of your discretionary income if were a new borrower on or after July 1st 2014. If you had loans prior to this date, then 15% of your discretionary income is used to calculate your payment. This is the amount of income you earn over 150% of the federal poverty line for your family size. This payment will not be higher than what you were paying under the standard 10 year repayment plan. In many cases, borrowers in the Income Based Repayment Program actually “pay” zero Dollars if their discretionary income isn’t high enough to meet the minimum amount. This is great for those who exit college with a huge loan balance and are hit with payments they cannot afford while looking for work, for example.
Ever feel like your hard earned money is being carted away?
Eligibility for Income Based Repayment depends on which loans you have taken out for your education, and when they were taken out. The following Federal Student Loans from the Direct Loan and Federal Family Education Loan (FFEL) Programs are the ones that qualify for application:
- Direct PLUS Loans (Graduate and Professional Students)
- Direct Consolidation Loans without PLUS Loans that were made directly to parents and not just as cosigners.
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- FFEL PLUS Loans (Graduate and Professional Students)
- FFEL Consolidation Loans without PLUS Loans that were made directly to parents and not just as cosigners.
If you do not have one of these loan types, you may still be eligible for the IBR by consolidating your federal student loans into the Direct Loan program.
Second, there is the Interest Payment Benefit. If your new monthly payment isn’t large enough to pay the accruing interest on subsidized portion of your direct loan, the Federal government will pay it for you for a period of up to but no more than three consecutive years once
you begin your Income Based Repayment program. This is one of the many forgiveness aspects that Federal Student Loans offer.
Forgiveness At End Of Term
Fourth is the 20 year forgiveness for new borrowers that took their loans out after July 1st 2014, or 25 years if the loans were taken before that date. The lifetime of an Income Based Repayment Loan is considered to be no more than 25 years. If over the lifetime of this loan, you make 300 qualified payments and the loan is still not completely paid off, any remaining loan amount will be forgiven and legally discharged. However, this discharged amount is considered taxable and must be paid for the year it was forgiven; i.e. a loan discharged in 2013 must be paid with other 2013 Income Taxes due in 2014.
Public Sector 120 Months Forgiveness
Finally, there is the student loan forgiveness for public service employees. If you make 120 on time, full monthly payments under an Income Based Repayment program while employed full time with a public service organization, you may apply to have the remaining balance of your loan or loans forgiven and legally discharged. This could save up to another 15 years of payments.
Annual Recalculation of Payment
Interested applicants need to keep in mind that although there is no minimum payment with an Income Based Repayment Loan, the amount is recalculated every year. In addition to the criteria listed in the first benefit, family size and changes to income (including a spouse) will alter the required amount. This annual recalculation in the monthly payment depends on when the loan program was started. Income increases, a new spouse, having a child or getting laid off will definitely change your monthly payment either up or down. The good news is that if your income rises dramatically, you can change your repayment plan into a standard repayment at any time you choose.
While the Income Based Repayment Program is not an easy one to apply and qualify for, it certainly beats defaulting on your responsibilities and having that black mark on your credit report for many years to come. The benefits under this Income Based Repayment program are extensive and designed specifically to help individuals and families in financial need while ensuring that the Federal Student Loan Program stays healthy and available for future students. If you think this may be an option that can be good for you and need assistance, call (844)-669-4407 for more information.
How to set up an income-based repayment plan for your student loans
Despite the positives of freelancing—being your own boss, creating your own work schedule, setting your own rates—it’s no secret there are quite a few cons. Taxes are harder to navigate, workflow can be treacherous and getting things like a loan can be downright impossible.
But here’s something you might not know: it looks like student loans can be added to the formidable “cons” list.
I happen to be a millennial with student loans. (Shocking, I know). I’m not alone: around 40% of “millennial households” are in the same boat.
Since October 2014 I’ve been trying to set up an income-based repayment plan. As a freelancer, my income changes often, but income-based plans offer some perks—namely that alluring carrot “loan balance forgiveness” at the end of the payment schedule, including the potential for economic hardship deferment.
It hasn’t been as easy as I thought it would be.
Each month I’ve submitted copious amounts of paperwork: paychecks, last year’s taxes, notes from clients listing my rates and what I am paid. I’ve sent access to my IRS information, informative letters and my husband’s paychecks. And each month, without fail, I’ve received the same thing: an electronic letter telling me they will require at least 30 days to process. 30 days later a new message: your request for income-based repayment has been denied. REASON: REQUIRES INFORMATION.
After three rejections I called them in a panic, and this time, miraculously, I was connected to someone helpful. Once we reviewed my information I finally asked what the deal was with the multiple rejections. “Why have I been denied 3 times? Why couldn’t someone just look at this paperwork like you just did?”
He sighed. “The income-based repayment system,” he told me, “is not really set up for people like you, with alternative income sources.”
“Freelancers?” I asked incredulously. “But so many people my age have student loans and work like I do.” He agreed.
“We have trouble connecting dots in the paper work and a lot of people give up.”
So how can you set up an income-based payment plan that works for your freelance life?
Here are four tips:
Annoying, I know, but completely necessary. As my loan counselor explained, freelance incomes are not something the loan holders are currently equipped to handle. The changing, untaxed income, multiple sources and other variants also equal more work than a more traditional 9-5 applicant. Loan application processors are likely to throw in the towel or leave the complicated application for the next loan processor. This is likely the reason I ended up with three rejection notices, I was told.
By calling I could have saved myself hours and money spent on mailing and faxing items that weren’t even useful in determining my payment plan. Calling also ended up helping me get some tips on taxes and how to create a better monthly payment option.
2. Always follow up with your student loan provider if your contract or financial situation changes in any way (rates, jobs, etc.).
I know, not easy when you’re a freelancer, since jobs ebb and flow all the time and make up a major aspect of freelance life. And, it’s not as if you don’t have enough to do already—but income based repayment plans always consider your income, so even if it changes slightly make sure you call. Income changes might make you eligible for different programs or plans and you could be missing out. Student loan applications are also taken on a rolling basis, unlike insurance enrollment, so you can probably get it reviewed and have changes applied at anytime.
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3. Consider looking into consolidation.
If getting an income based plan isn’t an easy option for freelancers, consolidation is even MORE difficult. Like housing loans, consolidation requires oodles of paperwork and favors a steady job with reliable paychecks. So why bother with consolidation? Because if you CAN get a consolidation you’re likely to save thousands of dollars in the long run. It’s worth the hassle.
Freelancers Union recommends Credible.
4. Take a look at our last checklist on managing your student loans.
Student loans are lousy, but they’re also a reality that many, many people face—you’re not alone, and the more you know about them the more power you have in keeping them at bay.
Freelancers, how do you keep student loans at bay?