Always check out the Income Driven and Graduated repayment plans before considering this option

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Always check out the Income Driven and Graduated repayment plans before considering this option

You must submit an application and provide either your Adjusted Gross Income AGI or alternative documentation of income such as a pay stub. If you have no income, you can state this on the application and it should suffice.

You can use AGI to qualify for your income-driven payment if BOTH of the following apply… 1) you have filed a tax return in the past two years 2) the income on the most recent federal tax return is not significantly different than your current income

Payments are based on your income and family size. This information must be updated each year so that your payments can be adjusted if necessary. The maximum payment for IBR and PAYE is the 10-year Standard Repayment plan equivalent payment. Under ICR and RePAYE, your payment is always based on your income no matter how high it goes.

Income-Sensitive Repayment

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  • Unsubsidized and Subsidized Federal Stafford Loans
  • FFEL PLUS Loans
  • FFEL Consolidation Loans

Income-sensitive repayment allows you to qualify for decreased monthly payments based on income, as compared to standard repayment, but is limited to a 10 year repayment term.

If your payments are reduced in the early years, remaining payments are increased to compensate. You must pay at least your monthly interest and it’s required that you reapply each year. It’s basically a 10 year repayment plan that allows for graduated payments based on income but because the term is set at 10 years, those reduced payments must be made up on the back end with higher payments.

This repayment plan will be more costly than the standard 10 year repayment plan. This option is rarely the best choice.

Choosing Your Repayment Plan

There are many factors to consider when choosing your student loan repayment plan. What specific loans do you have and what options are available for those loans? Do you plan to keep the loans in their current form or will you refinance or consolidate them? Do you plan to qualify for one of the forgiveness programs? What will be your income and financial situation? What’s your goal for loan repayment?

See below interactive flowchart. It gives graduating medical students and residents an idea of options to consider when choosing student loan repayment.

Public Service Loan Forgiveness PSLF

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The PSLF program is available for certain Direct Loan borrowers (including Consolidated Direct Loans) employed by not-for-profit or government organizations. To qualify for forgiveness of the remaining balance on your Direct Loans, you must have made 120 qualifying payments under a qualifying repayment plan while working full-time for a qualified employer. PSLF is a bear of a topic, so it has it’s own section below where you will find more details.

Income-Driven Repayment Forgiveness

If you are repaying loans using one of the income-driven repayment plans (IBR, PAYE, or ICR), loan forgiveness may be available on any remaining balance(s) at the end of the repayment period (if you make it that far). Essentially, for this forgiveness option to be of any benefit, you must have a loan balance at the end of full repayment period (20 or 25 years depending on your loans). Keep in mind this is totally different than PSLF. Most notably, it does NOT require qualified employment and the qualifying period is the full duration of the respective income-driven repayment plan.

How could you still owe money at the end of full repayment? Because it’s INCOME based. Results will depend on several factors, such as your income over the repayment period and the size of your total debt. Higher income and resulting higher payments will lower the likelihood of forgiveness. There is a point where your payments are high enough to pay off the entire loan on or before the full repayment period. This eliminates any benefit associated with income-driven forgiveness.

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