Are You Missing Out? Learn About Student Loan Repayment Plans

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Written by: Chad Van Horn | Van Horn Law Group

Recently the US Government accountability office issued a report saying that education could do more to make borrowers with federal student loans aware of repayment and forgiveness programs. This is like saying that the Titanic should have tacked a little more to the left. Out of the vast body of borrowers in active repayment, six percent were in Pay As You Earn or other income driven repayment plans, and 13 percent were in income-based repayment. This leaves 81 percent of those repaying their loans with higher payments and with those payments a higher risk of defaulting. Here are some key facts that you need to know about loan forgiveness and income driven repayment plans.

There are some encouraging signs that student loan default rates are dropping, possibly because of income driven repayment plans and loan forgiveness programs and improving economic conditions that result in loan holders obtaining jobs that provide them with enough discretionary income to repay their loans. Getting the word out is critical to resolving one of the largest pools of debt in the nation’s history, as well as freeing students from what has essentially become indentured servitude.

Types of Income-Driven Plans


There are three different types of income-drive payment plans:

  • Income-based repayment plan
  • Pay as you earn repayment plan
  • Income-contingent repayment plan

    • If you are outstanding debt is higher than your income, or if repaying that debt represents a large portion of your income, you may be eligible for these plans. Most federally originated student loans are eligible for at least one. These types of repayment plans are based on a percentage of your discretionary income .

  • Depending on when you borrowed, the income-based repayment plan will take 10 to 15 percent of your discretionary income, but your payment will never be more than it would be under the 10 year standard repayment plan. These plans you 20 to 25 years to repay your loans.
  • The pay as you earn plan will generally take 10 percent of your discretionary income, under the same rules as the income-based repayment plan. Under this plan it will take you up to 20 years to repay your student loans.
  • The income-contingent repayment plan will take 20 percent of your discretionary income, or what you would pay for a fixed payment over the course of 12 years adjusted for income. The income -contingent repayment plan will give you up to 25 years to repay your loans.

    • If there is any loan balance remaining at the end of these terms that loan balance is forgiven. In addition, during times of economic hardship or service in the Armed Forces you may qualify for a loan deferment if you have direct loans, FFEL loans, or Perkins loans. You may also qualify for loan forgiveness if you are working a qualified public sector position under the Public Service Loan Forgiveness Program.