Income Driven Repayment Plans for Student Borrowers

In this blog we want to make sure you understand what Income Driven Repayment is and how it affects you while you are currently enrolled in college and after you graduate. In April 2017, specific changes were made to federal student aid initiatives. These changes may affect your loan considerations in the 2017-2018 school year. While there is nothing permanently changed, the student loan protections at risk include changes to the loan forgiveness and income based repayment programs.

What is Income Driven Repayment?

An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size.

The Department of Education currently offers four different types of Income Driven Repayment Plans for those who qualify:

  • Revised Pay As You Earn Repayment Plan (REPAYE Plan)
  • Pay As You Earn Repayment Plan (PAYE Plan)
  • Income-Based Repayment Plan (IBR Plan)
  • Income-Contingent Repayment Plan (ICR Plan)

To check your eligibility for an Income Driven Repayment Plan, please visit: https://studentloans.gov/myDirectLoan/ibrInstructions.action to submit an application.

Income Driven Repayment Plans are important to student borrowers because it:

  • strengthens the rights of student borrowers,
  • provides a higher level of efficiency and customer service to student borrowers,
  • and allows debt repayment to become easier after graduation.

Prior to 2009 many lenders were accused of unfair lending practices to students, causing many student borrowers to claim financial hardships or file bankruptcy. The Department of Education is continually finding new ways to innovate student lending practices, keeping it fair for both the lenders and student borrowers.

In 2009 the Department of Education found effective ways to make student loan borrowing better by:

  • creating a single platform for all student loans to be managed by the federal government, while still outsourcing servicing contracts, and
  • creating better opportunities for student borrowers to manage their debt and enroll in income based repayment programs, while increasing the number of repayment plans being serviced, and work towards decreasing the number of borrowers going into default.

However, change was still needed when in April 2017 reports of a rise in the amount of written and verbal complaints from student borrowers about the effectiveness of their student loan servicers. Student borrowers were reporting that because servicers were mismanaging student loan accounts, a massive amount of student borrower accounts were still going into default.

Changes proposed for Income Driven Repayment Plans:

  • Reversing the ban on high fees for defaulted borrowers (In the past, Loan collectors were allowed to charge a collection fee of up to 16% on defaulted borrowers’ outstanding balance on loans made before 2010. These fees were banned in 2015, for borrowers who started repaying their debt immediately after defaulting.)
  • A new bidding process to have one servicer for all programs, instead of the nine currently in place. (Check out the Department of Education’s Fact Sheet on the Student Loan Servicing Recompete for loan servicers.)
  • Capping Income Driven Repayment Plans at 12.5% of a borrower’s income instead of the 10% that was set in place before.
  • Ending loan forgiveness program and eliminating subsidized loans.

What Are Your Next Steps As A Student Borrower?

  • Stay up to date with Student Loan programs by periodically checking in with the Federal Student Aid website periodically as we approach the 2017-2018 semesters.
  • Know who your student loan servicers are by visiting: https://studentaid.ed.gov/sa/repay-loans/understand/servicers
  • If you are behind on any of your current loans, call your servicers immediately, to submit any outstanding paperwork and enroll in an appropriate repayment plan with your servicer.

Make an appointment with our office to create a smart budget for this 2017-2018 school year, to prevent defaulting on your loans.

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Written by Desnoyers CPA

Desnoyers CPA

Known for her friendly, outgoing nature and her rare talent for financial foresight, Lydia Desnoyers has been serving individuals and small businesses in Florida since 2010. After earning her Master’s Degree in Accounting from Nova Southeastern University and her Bachelor’s Degree in Accounting from Florida State University, she became a Certified Public Accountant and a Certified Fraud Examiner.