The COVID-19 pandemic offered a generous reprieve from student loan repayments. However, payments are set to resume on January 1, 2023. Creating a strategy for repayment now is essential to ensure that your student loans do not financially burden you too severely.
In this first segment of our multi-part Student Loan Repayment Plan blog series, we discuss one repayment strategy to consider: income-contingent repayment. Read on to learn everything you need to know about income-contingent student loan repayment, then contact our debt resolution attorney at Ciment Law Firm, PLLC, THE Debt Defenders, for your free consultation at (833) 779-9993.
What Is Income-Contingent Repayment?
The income-contingent repayment plan makes repayment easier for students pursuing jobs with lower salaries. In this plan, a borrower’s minimum monthly repayment depends on their income, family size, and total borrowed amount. This minimum amount changes annually based on fluctuations in the stated factors.
Income-contingent repayment is available for students with loans directly from the U.S. Department of Education. Students with loans from private institutions may not qualify for this plan.
Through the income-contingent repayment plan, your maximum monthly payment would be 20% of your discretionary income or fixed payments in a 12-year loan term — whichever is lower. This plan lasts for 25 years, after which the remainder of your student loans would be forgiven.
Who Should Consider Income-Contingent Repayment?
The income-contingent repayment plan is just one of several income-based repayment plans offering eventual loan forgiveness. The best way to determine the most affordable plan is to contact your loan provider and ask them to place you in the program with the lowest monthly payments.
Income-contingent repayments are generally more expensive than other income-based federal student loan repayment plans. However, this plan may be best for people who want slightly lower payments than they can qualify for through a standard repayment plan but still want to minimize the total interest they will pay.
Pros and Cons of Income-Contingent Repayment
Income-contingent repayment offers benefits and downsides compared to other income-driven repayment plans. Here are a few pros of this plan:
- It can make your student loan payments more affordable by capping them at 20% of your income.
- Any remaining loans you still owe after 25 years can be forgiven.
- It can allow you to pay off your loan more quickly and with less interest than other plans, as it requires you to make larger payments.
- Lower monthly payments can allow you to dedicate more of your income to other financial goals.
However, here are a few cons of income-contingent repayment:
- It is the most expensive of the income-based repayment plans, as other plans cap payments at 10% or 15% of your income.
- It has a longer forgiveness period, as other plans allow for loan forgiveness after 20 years.
- Depending on your household income, your payments may not be much lower than with other plans.
As you can see, income-contingent repayment is more beneficial for some borrowers than others.
Other Repayment Programs to Consider
Income-contingent repayment may not be the most affordable repayment plan based on your financial situation. Thankfully, there are several other income-based repayment plans you can consider.
First, Pay As You Earn (PAYE) is a repayment plan available to students who borrowed their first federal student loan after October 1, 2007, and a Direct Loan or Direct Consolidation loan after October 1, 2011. This plan caps the monthly loan payment at 10% of your discretionary income.
Next, income-based repayment (IBR) is a repayment plan that adjusts your monthly payment based on your income and family size. You will have a lower payment if your student loan debt is high relative to these variables. Additionally, the amount you must pay under IBR is either 10% or 15% of your discretionary income, depending on when you borrowed your first loan.
You may also qualify for repayment programs based on your career. For example, the following repayment programs are employment-based:
- NURSE Corps: A program for nurses in eligible critical shortage facilities that provides payments totaling 60% of their outstanding loan balances
- Teacher loan forgiveness: A program that provides up to $17,5000 in forgiveness for teachers who teach for five complete, consecutive academic years in low-income schools
- Faculty loan repayment program: A program for faculty members at approved health professions schools that forgives up to $40,000 in student loan debt
Contact Ciment Law Firm, PLLC, THE Debt Defenders to Discover How a Debt Resolution Attorney Can Help
If you’re struggling to navigate student loan repayments, a debt resolution attorney can help. Our team at Ciment Law Firm, PLLC, THE Debt Defenders, can provide a federal student loan analysis to help you determine the right repayment plan for your needs. Our years of experience and deep understanding of student loans allow us to provide reliable advice and guidance to borrowers like you.
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