There are several reasons why you may want to apply for an Income Driven Repayment (IDR) Plan. IDRs can help make your monthly payments more manageable. In some cases, they can even lower the amount of interest that you will pay over time. If you're interested in finding out how to apply for an income driven repayment (IDR) plan, this blog post has all the information you need.
IDR plans are designed to help borrowers who have a high level of debt compared with their income. They usually provide payment amounts based on your annual earnings, family size, and state of residence.
The different types of IDRs include the following:
Income-Based Repayment (IBR) Plan: The 10-year Standard Repayment Plan amount is generally 10% of your discretionary income if you borrow after July 1, 2014. You will typically pay 15 percent of your discretionary income, but never more than the 10-year SRP amount, if you are not a new borrower as of July 1, 2014.
Pay As You Earn (PAYE) Plan: In general, the Pay As You Earn Plan is a ten-year repayment plan with monthly payments equal to 10% of your discretionary income divided by twelve, but never more than the Standard Repayment amount.
Income-Contingent Repayment (ICR) Plan: The Income-Contingent Repayment (ICR) Plan is a 12-year repayment plan with monthly payments equal to what you would pay under a 12-year fixed monthly payment plan adjusted for your income or 20% of your discretionary income divided by 12.
To qualify for an IDR plan, you must meet the following criteria:
To apply, you must fill out a form called the Income Driven Repayment Plan Request. You can submit your application online or on paper, which you can obtain from your loan servicer. The application allows you to name an income driven repayment plan or request that your loan servicer determine which income driven plan or plans you qualify for and place you on the income driven plan with the lowest monthly payment amount.
As with any financial decision, there are benefits and pitfalls to applying for an IDR plan. Some of the pros include:
The cons include:
There are several advantages and drawbacks to applying for an income driven repayment plan. Before making a decision, carefully consider your options, as they may affect your future financial situation significantly.