In most cases, you have to make sure your income always stays low enough that you qualify for the IDR plan—which means it can't go above the level where your payment would be higher than 10% of your monthly discretionary income. So, a promotion at work would probably put the kibosh on a loan cancellation.
You monthly payment will be 0$ if your AGI is less than 150% of the federal government's established poverty line of $12,880 in 2021. That means your income would have to be under $19,320.
Income-based repayment caps monthly payments at 15% of your monthly discretionary income, where discretionary income is the difference between adjusted gross income (AGI) and 150% of the federal poverty line that corresponds to your family size and the state in which you reside.
Cons of income-driven repayment plans
Recertification: You need to recertify your income and family size every year; your payment can go up or down if your situation has changed. Possible tax impact: You may need to pay income tax on any amount that's forgiven.
Switching to an income-driven repayment plan won't directly affect your credit score. But, a lowered monthly payment will lower your debt-to-income ratio. That can be good for your credit. On the other hand, you will get an extended loan term, so you'll have the debt for longer.
Overall, the Pay As You Earn (PAYE) plan comes out as the winner against Income-Based Repayment: PAYE lowers your monthly payments to 10% of your discretionary income. PAYE offers loan forgiveness after 20 years, no matter when you borrowed your loans.
Yes, you can be denied access to income-driven repayment plans. The reason? Not having a partial financial hardship. This is a requirement for certain plans, such as Income-Based Repayment (IBR) and Pay As You Earn (PAYE) plans.
If you're already on an income-driven repayment (IDR) plan, you may be able to lower your payment by updating your income information. You can pause payments through deferment or forbearance, but that approach has pros and cons.
You'll need to provide income documentation in the application or attest that you currently have no taxable income. If you use the paper form, you can provide a paper copy of your most recently filed federal income tax return or IRS tax return transcript.
First, apply for lower payments based on your income
To be safe, set a reminder for a month early. Is your IDR payment still too high for you? Consider asking your servicer about deferment or forbearance. If you qualify for forbearance , that is likely your better option.
Your servicer will notify you when your request has been processed. Processing typically takes about 30 days from the date you submit the request. Please note we're experiencing processing delays based on volume. Find out who your loan servicer is.
If you're married and file a joint federal tax return, the laws and regulations for income-driven repayment (IDR) plans generally require payments to be calculated based on the combined income of you and your spouse.
In order to initially qualify for the plan, the calculated monthly payment under IBR must be less than what you would pay under the Standard Repayment Plan (which is a 10-year fixed period). Generally, you'll meet this requirement if your student loan debt represents a significant portion of your annual income.
Under the PAYE Plan, IBR Plan, or ICR Plan
If you don't recertify your income by the annual deadline, you'll remain on the same IDR plan, but your monthly payment will no longer be based on your income.
Borrowing before that date will qualify you for Old IBR, which caps payments at 15% of your discretionary income and forgives your loans after 25 years of payments. New IBR improves on those numbers, shrinking them to 10% and 20 years, respectively.
More interest builds up when you have smaller payments over a longer repayment period. If your income goes up or your family size goes down, your monthly payment amount could increase.
Under all of the income-driven repayment (IDR) plans, your required monthly payment amount may increase or decrease if your income or family size changes from one year to the next or if you switch repayment plan.
More affordable payment: An income-driven repayment plan can lower your monthly payments by a sizable amount. Low-income borrowers could have payments as low as $0. Potential for forgiveness: If you still have a balance at the end of your new repayment term, it'll be forgiven.
If you decide that an IDR plan is no longer right for you, you may be able to switch to a different plan. Use the Department of Education's Loan Simulator Tool to see what plans you are eligible to switch to and what your payment would be under each plan to decide what is right for you.
Income-driven repayment plan
Any loan balance left at the end of your repayment period will be forgiven if you qualify. You could improve your credit score with an income-driven repayment plan if it helps you make payments on time.
Under these plans, borrowers are entitled to cancellation after 20 or 25 years of qualifying payments, depending on the plan. Plan eligibility is based on loan type and date when the loan was taken out.
But the SAVE Plan has some limitations: The plan doesn't have a cap on how high payments can be, so some people with incomes that are high compared to their loan balance would pay more on the SAVE Plan than they would on the Standard Repayment Plan.
If you can get a lower payment than you have now by switching to SAVE, then switch now (use the “Switch my current plan” option). If you have a lower payment using a plan like PAYE or IBR compared to what you can get now while using SAVE, then wait until 35 days before your Anniversary Date to switch to SAVE.
If you continue to make payments under IBR, any remaining balance on your loans will be canceled after: 20 years of payments if you were a new student loan borrower on or after July 1, 2014, or. 25 years if you were a new student loan borrower on or after July 1, 2014.