November 3, 2021

Can Student Loans Be Forgiven With Income Driven Repayment (IDR)?

Forgiveness

One consideration of getting into an income driven repayment plan (IDR) is student loan forgiveness. It can be appealing to pay and have the rest forgiven. However, there are certain conditions you need to fulfill in an IDR to qualify. Understanding them can lead you to decide whether it is the move for you.

What is an IDR?

An IDR is a payment plan given by the government to help those struggling to make payments on their student loans. If you are at risk of default or can foresee a scenario where you aren’t able to pay, then the option of the IDR is available. You often hear programs such as IBR, PAYE, or REPAYE. All of these fall under the IDR program.

In simple terms, you pay based on a percentage of your income with an IDR. The amount can increase or decrease, depending on changes in your cash flow.

How Do You Get Student Loan Forgiveness?

You’ll need to maintain an IDR plan for 20-25 years. After paying it consistently, the government will forgive the rest no matter the balance remaining. How long you’ll have to pay will depend on the plan you choose. Here’s a summary of each, according to IBR Info:

  • REPAYE: pay 10% of discretionary income for 20 years, or 25 years if you are in graduate debt. No proof of partial financial hardship (PFH) is required.
  • ICR: pay 20% of discretionary income and a 12-year repayment amount multiplied by an income percentage factor. You’ll have to pay for 25 years. It applies to all Direct Loan borrowers with no PFH required.
  • IBR: 10% of discretionary income for 20 years. Applies to people who took their loan on or after July 1, 2014. Must have a PFH.
  • PAYE: Pay 10% of discretionary income for 20 years. It applies to all borrowers who took out a loan after Sept 30, 2007, and one other loan after Sept 30, 2011. Must have a PFH

Is an Income Driven Repayment Plan Worth It?

When you get into an IDR with a plan to get student loan forgiveness, remember that it is a commitment you’ll have to make for a long time. If you believe you can pay your loan in less than 20 to 25 years, you won’t need an IDR. If it will be difficult for you to do, then this is an option to consider.

You’ll have to commit to the IDR to qualify for forgiveness. The good news is that the payment adjusts based on your income, so you won’t have to worry about being short on money. For some, it’s not an option they can ignore because they need an IDR to avoid getting into default. In those scenarios, an IDR is an appealing option.

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