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Preparing to pay your student loan again? Consider an Income Based Option


FROM Lake sydneyJuly 22, 2021 02:00

Yu-Ju Huang, assistant professor of applied mathematics at the University of Colorado at Boulder, has been researching the most economical way to pay off student loans in June 2021. RJ Sangosti – MediaNews Group / The Denver Post / Getty Images.

As of the end of July, there is still no official information on whether there will be a suspension of student loan payments after September 30, 2021. unprepared to resume payments in the fall, but there are still ways to feel more ready – one of them is an Income-Driven Repayment (IDR) plan.

Income-driven repayment plans set the repayment of the borrower’s student loan at an affordable amount based on income and family size. The Federal Student Aid Bureau offers four different IDR options that limit monthly installments to just 10% to 20% of a borrower’s income. The rates are set to help borrowers pay off their loans over a period of 20 to 25 years.

For those borrowers facing wage cuts or unemployment during the pandemic, switching to an IDR plan could help ease the burden of returning regular payments, according to student loan experts. This is because the payments are based on the most recent individual tax returns.

“There are great scheduling opportunities here for people with income-driven repayment plans,” says Patti Hughes, Director of Lake Life Wealth Advisory Group… Finding an IDR plan “really makes a lot of sense for people whose income dropped during the pandemic, to see if the payout is lower considering the new income.”

Who should consider switching to an IDR plan?

The IDR plan requires borrowers to re-certify their income and family size annually. People who found another job during the pandemic and are now earning more can hold out until re-certification 20 months later than the deadline. This will allow borrowers to use their old tax return showing lower income, resulting in lower payments.

While an IDR plan may be a good move for some borrowers, it may not be the best choice for others. This makes sense for borrowers looking to lower their monthly payments, which may not necessarily be the case for those whose incomes rose during the pandemic.

“You may not be eligible for some income-based repayment plans that require personal financial hardship,” Hughes reminds borrowers whose incomes rose during COVID-19.

According to student loan experts, IDR plans are not always suitable for high-income people, and if you haven’t met your loan obligations, then this may not even be an option.

What are the IDR options?

The Federal Student Aid Bureau offers four IDR options which require borrowers to give up a portion of their income on a monthly basis. Under two of the four plans, the borrower usually pays 10% of their discretionary income (the second option limits the amount to no more than 10 years of standard repayment plan).

Another plan requires 10% or 15% of your income, depending on when you became the borrower. The fourth plan extracts 20% of the borrower’s discretionary income, or what they would pay under a fixed payment plan over 12 years, adjusted for income.

Democratic congressional leaders, which are pushing for a student debt cancellation and an extension of the payment freeze, caution against IDR plans, calling the registration process “complicated and lengthy,” arguing that borrowers have too many options.

IN Institute for College Access and Success in End-2020 Statement proposed to consolidate the IDR program, offering borrowers only one option to “help more borrowers gain access to affordable payments and avoid the devastating consequences of loan defaults”.

Are there additional deferrals or debt relief in the cards?

Never say never. There have been several recent indications that debt cancellation or debt forgiveness may be an opportunity for student loan borrowers.

Congress leaders, including Majority Leader Chuck Schumer, a New York Democrat, and Senator Elizabeth Warren, a Massachusetts Democrat, are vocal advocates for further extensions of the freeze and debt cancellation.

In June 2021, politicians wrote a letter to President Joe Biden asking him to extend the moratorium until March 31, 2022. Robert Kelchen, Associate Professor and Chair of the Department of Leadership, Management and Policy in Education, Seton Hall University, recently said Luck “This seems to be a 50-50 proposal.”

The Department of Education also recently hired hired student debt cancellation lawyer and Warren ally Toby Merrill as Deputy General Counsel in the Office of the General Counsel. Her research was used to support Warren’s 2020 campaign proposal to direct the education secretary to write off $ 50,000 in student debt from each borrower.

Biden said during his campaign that he supports a $ 10,000 repayment to the borrower, but his funding was not included in his latest budget proposal

“This does not mean that all hope is lost,” said Bruce McClary, senior vice president of communications for the National Fund for Credit Counseling (NFCC). Luck. He adds that student loan forgiveness may also happen in the future.

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