Soon, thousands of college students across America will be graduating and seeking employment. Soon afterwards, the government will come knocking on their doors asking them to begin making payments on their student loan debt. As most people are well aware, the job market for graduates remains tight with many graduates having to settle for lower paying jobs than they had hoped for or that their college degree suggests. As a result, many graduates will soon discover that the student loan repayment schedule is going to be a financial burden that is tough to bear. The good news is that help is available under a new federal initiative called Payback Playbook. Of the $1.2 trillion in student loans, about 25% are in some stage of default. The new initiative requires loan servicing companies to provide borrower’s with a list of customized repayment options. These options include repayment schedules based on your income:
- Revised Pay as You Earn Repayment Plan (REPAYE Plan) – Generally you pay 10% of your discretionary income.
- Pay as You Earn Repayment Plan (PAYE Plan) – Generally you pay 10% of your discretionary income but never more than the 10-year standard payment plan.
- Income-Based Repayment Plan (IBR Plan) – Generally you pay 10% of your discretionary income if you’re a new borrower on or after July 1, 2014, but never more than the 10-year Standard Repayment Plan amount. Generally you pay 15% of your discretionary income if you’re not a new borrower on or after July 1, 2014, but never more than the 10-year Standard Repayment Plan amount
- Income-Contingent Repayment Plan (ICR Plan) – Generally, you pay the lesser of: 10% of your discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.
Under each of these programs, the loan is forgiven if it is not fully repaid by the end of the payment period (typically 20 to 25 years) and there are provisions for hardship relief.
A number of other repayment options are available including the Public Service Loan Forgiveness (PSLF) program. Because of the complexities and potential pitfalls you should consult a professional before making changes to your current loan program.