Find out which Student Loan Repayment Plan is the right for you, as the U.S. Department of Education reopens two of them!
The U.S. Department of Education recently reopened two student loan repayment plans, so, in order to help you choose the right repayment plan, let’s talk about each of them. The plans now available are the Pay As You Earn Repayment Plan (PAYE) and the Income-Contingent Repayment Plan (ICR).
Both are income-driven repayment (IDR) options, which calculate monthly payments based on your income and family size. They also provide loan forgiveness after a set period. The Education Department decided to reopen these plans while its new repayment program, the Saving on a Valuable Education (SAVE) plan, is undergoing legal disputes.
While the SAVE plan is on hold, borrowers enrolled in it are placed in interest-free forbearance, meaning they don’t need to make payments. In contrast, those who join the reopened PAYE or ICR plans will earn credit toward forgiveness.
“The Department continues to defend in court the authority to cut payments for borrowers with high debts and low incomes through the SAVE Plan. In the meantime, we are making more options available to low-income borrowers, teachers, servicemembers, and other public servants so they can make the best choices for their financial situation”, said U.S. Under Secretary of Education James Kvaal in a statement.
Choosing the Right Student Loan Repayment Plan
If you’re currently enrolled in the SAVE program’s interest-free forbearance, you might consider staying put if you are facing financial difficulties, according to higher education expert Mark Kantrowitz. However, Kantrowitz noted that the forbearance period could end if the administration changes, and it won’t count toward loan forgiveness. Borrowers who want to progress toward debt cancellation through PSLF or IDR plans may consider switching to one of the recently reopened plans, PAYE or ICR, he advised.
Experts also recomended that, for borrowers who aren’t seeking loan forgiveness or can afford regular payments, the Standard Repayment Plan might be the best fit, once payments are fixed and the loan term is typically 10 years. You can use online tools that estimate your monthly payments under different plans.
Pay As You Earn Repayment Plan (PAYE)
The PAYE plan is often the most affordable option for eligible borrowers.
- Monthly payments are capped at 10% of your discretionary income.
- Debts can be forgiven after 20 years.
- No payments are required on the first $22,590 of income for an individual or $46,800 for a family of four.
Income-Contingent Repayment Plan (ICR)
The ICR plan can offer $0 monthly payments for individuals earning up to $15,060 or $31,200 for a family of four. Beyond these amounts, some payments are capped at 20% of the borrower’s income. And the debts can be forgiven after 25 years.