Using Income Based Repayment
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An income based repayment plan is a method used for federal student loans. This commonly used method is based on the amount of the monthly payment and its affordability to your family. If you are struggling making the monthly payments on your student loans, this is an option you might want to consider.
Types of Student Loans Eligible
Stafford, Grad PLUS loans as well as others use an income based repayment plan. If the student loan was written under the Direct Loan program or the FFEL program, most federally consolidated loans may use this method. Both old and new income based repayment plan loans use this method, as well as educational lending for undergraduate, graduate and job training loans. The types of loans that do not use the income based repayment plan method include the parent PLUS loans, the consolidated parent PLUS loan, or any loan currently in default.
What Does It Take To Become Eligible?
Qualification for the income based repayment plan is based on the how affordable the monthly payment is for the student. Having a relatively high student loan debt compared to the amount of your monthly payment and family size will allow you to enter this type of plan. In normal cases, the lending department will factor in your personal and loan information, and which state you are in, to see if you qualify for this loan.
Should you qualify, and the calculated new income based repayment monthly payment is lower that what you are currently paying on your eligible loans, you may repay your debt using this new method at the lower amount. The loan must also be a standard repayment and have a term of ten years. After all calculations should your monthly payment be higher than the amount using the income base method, you will be allowed to use the lower payment plan.
Benefits Of An Income Based Repayment Plan
The monthly payment amount using an income based repayment plan method is lower than a traditional repayment plan of the same amount of time of ten years, however, by extending the loan out for a longer period of time, the accruing interest on the principle is more, making the cost of the loan more expensive.
One of the benefits of this repayment plan has to do with the interest. If after calculating the income based repayment monthly payment that payment is less than what would cover the interest applied to the account each month, the federal government will pay the unpaid interest. This occurs on subsidized Stafford loans, including Direct Loans and FFEL loans. This may occur for up to three years.
In addition, after 25 years of paying towards the income based repayment plan, any remaining balance, including principle and interest, is cancelled. For those who work in an eligible public service job and make at least 120 payments while working full time in that position, the debt is cancelled after ten years.
Is It For You?
The income based repayment plan is a good option for those who have qualifying student loans or who consolidate student loans that qualify. However, each year, you will be required to submit documentation showing your income and the payments sent. Without documentation, the loan reverts to a standard repayment plan.
Article Source: Articlelogy.com
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