What Can I Do to Reduce Monthly Payments on My Federal Student Loans?

Posted on September 9, 2015 at 12:00pm by
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Debt horror stories are in abundance throughout the country. Just last week, we wrote about the story of a man who was stuck with over $400,000 in student loans. However, many of these horror stories involve private student loans, which have less lenient repayment plans, harsher penalties and higher interest rates.

Depending on the type of federal student loan, repayment options can make it easier for graduates to set up payments around their income. Some borrowers can benefit from income-driven repayment options.

Income-Based Repayment: This is commonly called the IBR plan. The IBR allows individuals with certain types of federal student loans to set repayment to 10 or 15 percent of their adjusted gross income, depending on the date loans were dispersed. When a person has high amounts of federal student loans and low annual income, this option can provide relief from monthly payments. The IBR can allow graduates and former students to focus finances elsewhere – such as mortgages, businesses or vehicles. This repayment option is available for FEEL and Stafford loans.

Income-Contingent Repayment Plan: The ICR plan, like the IBR, sets monthly payments to adjusted gross income. However, unlike the IBR, the ICR plan includes the principal balanced owed into monthly payments. This difference can make monthly payments higher than the IBR. This repayment plan is an option for only Stafford loans.

Pay as You Earn: For students with federal student loans dispersed after October 1, 2011, the PAYE plan allows former students and graduates to pay 10 percent of their adjusted gross income.

Public Service Loan Forgiveness: This is an awesome aspect of the income-driven repayment plans. For borrowers in public service positions, debt can be forgiven after 10 years of consecutive payments. Public school teachers, firefighters, and police can have federal loans forgiven after 10 years if payments are made on time.

The IBR and ICR offer forgiveness on remaining debts after 20 to 25 years depending on the dates the loans were dispersed. However, income taxes must be paid on any amount forgiven. Choosing these options may also mean paying more interest.

The Sader Law FirmKansas City Bankruptcy Attorneys