Tell me more about income-based plans.
The complicated rulesbut the gist is simple: Payments are calculated based on your income and adjusted again each year.
After monthly payments for a certain number of years – usually 20, sometimes 25 – any remaining balance is cleared. (The balance is taxable as income, though provisional tax rules federal income tax exemption for balances through 2025.)
There is a puzzling types of plans available, and maybe even available a new one coming soon, though perhaps not for a while. Present, alphabet soup consists of PAYMENT, GIVE BACK, ICRand IBR (there are two types, with the latest version updated for slightly better terms for newer borrowers).
Monthly payments are typically 10 or 15 percent of discretionary income, but one plan is 20 percent. Discretionary income is usually defined as amount earned over 150 percent of poverty level, adjusted for household size. “PAYE typically has the lowest payout, followed by IBR or REPAYE, depending on the borrower’s specific circumstances,” says Mark Kantrowitz, a student support specialist.
There are a dizzying array of rules. Consider your spouse’s income.
“REPAYE has a marriage penalty, while IBR and PAYE will only use the borrower’s income if they file separate returns, joint income if they file jointly,” he said. REPAYE, he said, uses joint income regardless of tax return status.
Have all of that?
These plans are not a cure-all. While some borrowers may qualify for a $0 down payment, these plans don’t always fit everyone’s pocket. The formulas are not adjusted for local costs of living, private student loans or medical bills, among other things. And those who qualify for small payments (or $0) will see their balance grow, sometimes dramatically. That can be emotionally damaging, even if the debt is forgiven years later.
But they are still a more manageable solution for many borrowers.
Mike Pierce, executive director of the Student Borrower Protection Center, said: “Applying for an IDR now is a great next step, especially if you lost your job during Covid, or your wife / your husband has lost his job and you are having a decrease in income”.
https://www.nytimes.com/article/student-loan-payment-restart.html Student Loan Restart Delayed. This is what needs to be done.