Since the payment is based on your income and financial situation, it will be adjusted to something that you can afford while unemployed. Lower Monthly Payments Monthly payments on an IDR plan are much more likely to be lower. In fact, IDR plans offer the lowest monthly payments out of all repayment options.
Income-driven repayment disadvantages
Since you'll be repaying your loan for longer, more interest will accrue on your loans. That means you might pay more under these plans in the long run — even if you qualify for forgiveness. It's likely you'll pay off your loan before forgiveness kicks in.
The standard repayment plan is the default repayment plan that federal student loans are automatically placed in. The standard repayment plan involves fixed payments over 10 years (or up to 30 years for consolidation loans).
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.
Repayment plans based on your income are a smart choice to lower your payment. For example, payments on the Saving on a Valuable Education (SAVE) Plan are no more than 10% of your discretionary income. The lower your income—or the larger your family size—the less you'll pay each month.
By the end of the repayment period in an IDR plan, any remaining balance that you have not paid off may be forgiven.
The standard repayment plan is available to all federal loan borrowers, and you can even switch back to it if you've chosen a longer repayment plan in the past. Eligible loans include: Direct subsidized and unsubsidized loans.
A standard plan offers fixed monthly payments over 10 years. Using this plan, you'll pay less interest over time and get out of debt faster, but the monthly payments can be difficult for some borrowers.
Since the 10-Year Standard Repayment Plan requires you to fully pay off your loan within ten years (120 monthly payments), you will not have any remaining loan balance to be forgiven if you make all of your 120 required payments under a 10-Year Standard Repayment Plan.
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.
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.
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.
Any borrower with ED-held loans that have accumulated time in repayment of at least 20 or 25 years will see automatic forgiveness, even if the loans are not currently on an IDR plan. Borrowers with FFELP loans held by commercial lenders or Perkins loans not held by ED can benefit if they consolidate into Direct Loans.
IBR may be more attractive to borrowers who expect their incomes to rise significantly, while SAVE can be a good choice for lower- and middle-income borrowers. In July 2024, SAVE will offer a 10-year forgiveness for smaller loans and cap some payments at 5% of the borrower's disposable income.
This report also proposes principles for reform that would address these four key problems with the structure and implementation of IDR plans: the under-enrollment of struggling borrowers in income-driven plans; the unaffordability of monthly payments for some borrowers, even those in income-driven plans; an increase ...
Need for a longer amount of time: A graduated or extended plan may offer more years for repayment. Better debt management: Different plans provide options to manage debt according to income level and financial situation.
Best repayment option: standard repayment. On the standard student loan repayment plan, you make equal monthly payments for 10 years. If you can afford the standard plan, you'll pay less in interest and pay off your loans faster than you would on other federal repayment plans.
The 10-year Standard Repayment Plan also qualifies for PSLF, however under that plan borrowers are scheduled to pay off their loans in 10 years and may not have a balance to forgive under PSLF.
The standard repayment plan on student loans may make sense for you if you want to limit the amount you pay overall. Payments under standard repayment are larger than under other plans that extend your repayment term. But you'll pay the least interest and finish repayment the fastest using standard repayment.
The IBR plan not only bases your payment on your income, but also promises loan forgiveness. To qualify for loan forgiveness, you must make on-time payments for 20 years for loans disbursed after July 1, 2014, or 25 years for loans disbursed before July 1, 2014.
That said, there are some situations where it's worth considering. Your student loan payments are high compared to your income: Because income-driven repayment is based on your actual income, you could save hundreds of dollars each month by switching plans.
Other borrowers might have to consolidate federal student loans to qualify for IDR. Your income might be too high to qualify: If 10% of your discretionary income is higher than your monthly payment on a standard repayment plan, then you won't be able to benefit from the Income-Based Repayment or PAYE plans.