New Options for Student Loan Borrowers: Understanding the Pay As You Earn and Income-Contingent Repayment Plans
The U.S. Department of Education has reopened two student loan repayment plans, providing borrowers with more choices to manage their debt. The Pay As You Earn Repayment Plan and the Income-Contingent Repayment Plan are both income-driven repayment plans, which set monthly payments based on income and family size, leading to debt forgiveness after a certain period.
What You Need to Know About the Repayment Options
While the Department of Education’s new repayment program, the Saving on a Valuable Education plan (SAVE), is tied up in legal battles, borrowers can take advantage of these two alternative plans. The SAVE plan, which offers lower monthly payments and quicker debt erasure for those with small balances, is currently on hold due to lawsuits filed by Republican attorneys general in Kansas and Missouri.
The Benefits and Drawbacks of the Current Situation
Borrowers enrolled in the SAVE program are currently in an interest-free forbearance, which means they have a $0 monthly bill. However, this comes with a downside: months in forbearance do not count towards loan forgiveness under income-driven repayment plans or Public Service Loan Forgiveness (PSLF). Experts suggest that borrowers who want to make progress towards debt cancellation may consider switching to one of the Education Department’s other income-driven repayment plans.
Exploring Alternative Repayment Plans
The Pay As You Earn Plan and the Income-Contingent Repayment Plan are two options worth considering. The Pay As You Earn Plan tends to be the most affordable option, with monthly bills limited to 10% of discretionary income and debt forgiveness after 20 years. Borrowers also make no payments on the first $22,590 of their income as an individual, or $46,800 for a family of four.
Comparing Repayment Plans
The Income-Contingent Repayment Plan offers $0 payments for single individuals making up to $15,060, or $31,200 for a family of four. Above these amounts, some borrowers’ bills are set at 20% of their income. Online tools are available to help determine monthly bill amounts under different plans.
The Standard Repayment Plan: A Good Option for Some
For borrowers who are not seeking or eligible for loan forgiveness and/or can afford the monthly payments, the Standard Repayment Plan may be a good option. Under this plan, payments are fixed, and borrowers typically make payments for up to 10 years.
Making an Informed Decision
With multiple repayment plans available, it’s essential for borrowers to understand their options and make an informed decision based on their individual financial situation. By exploring these alternatives, borrowers can take control of their student loan debt and work towards a more secure financial future.
Leave a Reply