Federal Student Loan Repayment Programs

Income Based Repayment Plan

The income based repayment plan is a new plan offered for the major types of federal student loans made. The monthly student loan payment under this plan is capped at an amount that is affordable based on your income and number in your family. You are considered eligible for this plan if the amount you would pay under this plan is less than the monthly payment amount in a 10 year standard payment plan. If you repay under this plan for 20 years and meet other criteria, you may be eligible to have the remaining balance of the loans cancelled. If you work in a public service job and have reduced loan payments through this plan, the remaining balance of the student loans may be called after 10 years.

Income Contingent Repayment Plan

The income contingent repayment plan or ICR offers you the opportunity to pay back your loans without incurring a financial hardship. Every year in the ICR, your monthly student loan payment is calculated on the basis of your AGI (adjusted gross income) and your spouse’s AGI if married, family size and total of your Direct Loans. In the ICR, you pay the lesser of the payment you would make if you repaid your loan in 12 years multiplied by an income percentage factor that varied with your annual income or 20% of your monthly discretionary income. If your payments don’t cover the interest that has accrued on your loans, the unpaid amount is capitalized once each year. Capitalization, however, does not exceed 10% of the original amount you owed when you entered the repayment plan. Interest accrues but does not get added to the loan principal in this case. If you have not finished paying your loans in 20 years in the ICR, the unpaid portion is discharged. The IRS does hold you liable for taxes on the discharged amount. Graduate and professional student Direct PLUS loan borrowers are eligible for the ICR. Parent Direct PLUS loan borrowers are not eligible for the ICR.

Standard Repayment Plan

In this consolidation strategy, payments are fixed and stretch out over as many as 10 years. Under this plan, monthly payments are higher but the loan will be paid in full sooner and with the least amount of interest paid as possible. If you can make these payments, it will help you get out of student loan faster to save thousands of dollars in interest. You are able to accelerate payments and pay the loan under the standard repayment plan faster as well with no penalty for early payoff. Loans that qualify for this plan include direct loans made under the William D. Ford Federal Direct Loan Program (also known as Direct Loan) and loans made under the Federal Family Educational Loan Program (also known as FFEL .)

Pay As You Earn Repayment Program

This is another repayment program for federal student loans that brings your calculated monthly payment in line with your current income and family size. It is geared to assist student debtors and their families with an affordable monthly payment on their student loans.