Options for Student Loan Debtors – Part 2: Federal Student Loan Repayment Plans

Student Loan PaymentsIf discharging your student loan indebtedness in a bankruptcy is not a feasible option and your student loan is a federal student loan, you may want to consider one of the following repayment options:

  1. Standard Repayment – You pay a fixed amount each year for up to 10 years.
  2. Graduated Repayment – Your payments are lower at first and then increase each year for 10 years.
  3. Extended Repayment – You can choose fixed or graduated payments over 25 years.
  4. Income Contingent Repayment – Your federal loan servicer will calculate your payment each year based on your adjusted gross income, family size and total amount of Direct Loans. Your payments will change as your income changes.  Any unpaid balance will be forgiven after 25 years.
  5. Income Based Repayment – Your maximum monthly payments will be 15% of your discretionary income which is the difference between your adjusted gross income and 150% of the poverty guideline for your family size and state of residence. Other conditions may apply.  Payments adjust each year.  Any unpaid balance will be forgiven after 25 years.  For new borrowers on or after July 1, 2014, payments are 10% of your discretionary income and the unpaid balance is forgiven after 20 years.
  6. Pay-As-You-Earn – Your maximum monthly payments will be 10% of your discretionary income. Other conditions may apply.  Payments adjust each year.  Any unpaid balance will be forgiven after 20 years.
  7. REPAYE – This repayment plan is expected to be approved and available in 2016. Your payments will be capped at 10% of your discretionary income.  The repayment plans term is 20 years for loans for undergraduate education and 25 years for loans for graduate school.  If your payments do not cover the accrued interest each month, your interest accrual will be capped at 50% of the unpaid interest.  Also, federal loan services will consider your joint marital income when calculating the amount of your payment.

Under the repayment plans detailed above, you may find that your payments are $0 per month.  To determine your eligibility for each repayment plan, you can submit an application to the U.S. Department of Education.

For more information on debtor-creditor issues, please contact Charles Smith or Nicole Hughes at Telpner Peterson Law Firm, LLP today at (712) 325-9000.

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