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- There are several reduced-payment options for those who meet income and family size requirements.
- An income-driven repayment plan may be a good choice if you can't handle your monthly payments.
- Your federal student loans are in forbearance until September 30, 2021.
- Read more personal finance coverage.
Many Americans are still feeling financial pressure as the US rebounds from the devastating economic impact of the coronavirus pandemic, and that's especially true for anyone in the midst of paying back a student loan. If you're suddenly working reduced hours or have lost your job entirely, that previously manageable monthly payment might be looking a lot higher these days.
As a result of the federal government's pause on student loan repayment, your loans will remain in forbearance until September 30, 2021, and will not accrue interest. After that, though, payments will start up again, and you might not be ready to keep paying the amount you've been shelling out up to this point.
The good news is, there are ways to reduce your monthly payment if you have federal loans. If your current monthly payments eat up a lot of your income, or you have dependents, you may qualify for an income-driven repayment plan.
Choosing one of these plans could significantly reduce your monthly payment – potentially even bringing it down to zero – and the application process is quick and easy, so it's absolutely worth considering.
We'll walk you through the pros and cons below, and give you an idea of the basic process of how to apply for an income-driven repayment plan.
What is an income-driven repayment plan?
Once you graduate and it's time to begin payment on your federal loans, the federal government will automatically set you up with the Standard Repayment Plan, a program that consists of 10 years of fixed monthly payments. Meaning your payments don't change relative to your circumstances. (Income-driven repayment is not available on private loans.)
In contrast, income-driven repayment (IDR) plans take your particular income and family size into account when calculating monthly payments. Depending on those factors, you'll pay back 10% to 20% of your income for 20 to 25 years, at which point you'll be eligible for student loan forgiveness for any remainder.
Pros and cons of income-driven repayment plans
How to apply for an income-driven repayment plan
If you've decided that IDR is right for you, applying is both quick and easy. There are four different types of payment plans:
- Revised Pay As You Earn Repayment (REPAYE)
- Pay As You Earn Repayment (PAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
All four are served by the same application, which you can find at the website for Federal Student Aid. The application has to be completed in a single session, so don't start it when you have a bunch of other stuff going on. According to the website, it usually takes 10 minutes or less to apply, and the process is very similar for recertifying your income.
What will I be asked?
You can expect a series of pretty straightforward questions. (And if you're already feeling stressed, not to worry – there's a demo version of the application that you can walk through to see what lies ahead.) But here are the basics of the 2021 application:
- Reason for request: Is this your first application, or are you adjusting an existing plan?
- Employment information: You'll be asked whether you work for a nonprofit or government organization.
- Specifics about your family: Specifically your marital status and number of dependents in your household.
- It'll (ideally) grab info from your taxes: Just make sure you aren't off the page for more than 30 minutes during this portion, or your session will automatically expire and you'll have to start the process over.
- More on your taxes: You'll be asked about your federal income taxes for the last two years. Number one, whether you filed them, and number two, whether anything in your life has changed significantly since then. (Basically the system is wondering if those returns are a useful snapshot for your current situation.)
Answering the above information should take you to the Repayment Estimator, which asks for your Current Loan Balance, your Adjusted Gross Income (AGI), which you can find on IRS form 1040, 1040A, or 1040EZ, and the state you live in.
Once you input all that, you should be informed about which of the four plans you qualify for, and a prediction of your monthly payment for each.
At that point, you can either choose which plans you'd like to be considered for, or click a box that says you'd prefer your loan holder to place you on the plan with the lowest monthly payment amount. (Your loan holder will make the same judgement call if you ask to be considered for plans you don't qualify for, choosing the lowest one available.)
From there, it's just some standard contact information and the best times to reach you, a quick review of the information you're submitting in your application capped with a signature, and you're done. Just keep your eye out for a confirmation email from Federal Student Aid, and be prepared to complete those next steps.
Whether to go the IDR route is entirely up to you, of course. But whatever you decide on, don't let the application process intimidate you, because at the end of the day, it's actually quite straightforward and intuitive.