How to Qualify for Income Driven Repayment
With the rising cost of education there are more and more people turning to student loans to help them pay for their education. For physician assistant school the cost of tuition alone can be over $100,000. For other fields of medicine such as medical school or dental school the tuition can be much greater. Unless you were born into a family who was able to save the money for you, very few people have that kind of money sitting around. Once you are done with school you’ll be faced with paying off these loans and it is important to understand your options. Income driven repayment can help ease the monthly burden of paying off your loans, however before you sign up for one of these plans you should know both the benefits and costs of being on an income driven repayment plan as well as what it takes to qualify.
Income driven repayment plans lower your monthly payment so that they are at an amount that is affordable based on your income and family size. On the standard plan, monthly payments are set for 120 equal payments or a 10 year period. The income driven plans are the REPAYE (re-pay as you earn), PAYE (pay as you earn), IBR (income based repayment), IBR for new borrowers, and the ICR (income contingent repayment).
Each income driven plan has longer lengths of time for repayment compared to the standard plan ranging from 20-25 years and payments are based on a percentage of your income, usually 10-15% of your discretionary income. For each of these plans you must initially qualify and you have to re-certify on an annual basis. To apply or re-certify for these plans you can go online and submit an income driven plan application at studentloans.gov. When you re-certify your monthly payment will be re-calculated based on any changes to your salary or family size.
For each of the the income driven repayment plans there are different requirements for qualification. For the REPAYE and ICR plans any borrower with eligible federal student loans can apply. In order to qualify for the PAYE and IBR plans the payment you make under these plans must be less than what you would pay under the standard plan. You will typically qualify for these plans if your federal student loan debt is greater than your annual discretionary income or is a significant portion of your annual income. Also, for the PAYE plan you must be a new borrower (no outstanding balance on a direct loan when you received a new direct loan) as of October 1, 2007 and must have received a disbursement on or after October 1, 2011.
If you’ve decided that you can’t handle the monthly payments on the standard plan and you’d like to pursue an income driven plan you should know how much more you’re going to be paying in total. Although your monthly payments will be less you’ll be making the payments for a longer period of time, which means more interest paid and a higher total amount paid.
Using a student loan calculator with the average student loan debt of $100,000 for PA school and salary of $104,000 the standard payment would be $1,151 over 120 months and the total amount paid would be $136,096. On the PAYE plan the monthly payments would drop down to $559 over 197 months for a total of $181,993 paid over the life of the loan. Depending on the amount of debt you have and your annual income, if your payments exceeded the 20 year limit on the PAYE plan the remaining balance would be forgiven; however using the example above you would pay your loan off before the 20 year limit.
If you work for a non-profit hospital you may qualify for the Public Service Loan Forgiveness program and if you do qualify for this some of your loans can be forgiven after ten years of working.
There has been a lot of talk lately of what might happen with the Trump administration and student loans. He has talked about raising the amount of discretionary income from 10% to 12.5%, and lowering the years for forgiveness from 20 years to 15 years. As with medicine there are a lot of changes going on with student loans and it is important to stay on top of what is going on to make the best decision possible; but for now these are some of the options you have to help keep your monthly payments manageable.
