Are Income-Driven Repayment Plans Right for Me?


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Income-driven repayment plans exist to help borrowers who are having trouble making payments on their federal student loans. And while they come with a number of benefits – including loan forgiveness after 20 to 25 years and lower monthly payments – they aren’t right for everyone. There are some cases when income-driven repayment plans will be in your best interest, but there are also some cases when it’s better to stick with your existing plan.

With that said, here are the three key benefits of income-driven repayment plans, along with a few tradeoffs to keep in mind when making your decision:

1. You’ll have lower monthly payments.

Income-driven repayment plans ensure you’ll pay less each month, making your payments more manageable and freeing up money that you can save and put towards other expenses. Clearly, this is an important benefit if you’re just starting out and aren’t making much money.

The tradeoff: With lower monthly payments, you’ll also pay more in interest over time. Interest accrues on the current balance, which means the longer you take to repay the loan with smaller payments, the more interest you’ll pay in the long run. You’ll also have a longer loan term when compared to the standard ten-year repayment plan.

2. Some of your loan may be forgiven.

Under income-driven repayment plans, your balance may be forgiven after 20 to 25 years of qualifying payments.

The tradeoff: Even though part of your loan will be forgiven, it may be taxable as income. And, since you’re paying more over the life of the loan, in some cases forgiveness may not equal savings. To figure out if the forgiveness amount is worth it, use a simple online calculator like this one.

3. Your payments will change with your income.

One of the best things about income-based repayment plans is that your monthly payment isn’t fixed – it’s flexible. So if you lose your job, take time off, or your income is substantially reduced, your payments will adjust accordingly so they’re always affordable.

The tradeoff: You have to provide your lenders with ongoing, updated income information to continue qualifying for the program. This is just something to keep in mind as it can add a layer of complexity to your repayment plan.

At the end of the day, figuring out whether an income-based repayment plan is right for you is a personal decision. Carefully weigh the benefits and the tradeoffs, and be sure you’re making a decision that is not only in your best interest today, but also for the long-term.