Interest-Based Student-Loan Repayment Plans

Interest-Based Student-Loan Repayment Plans

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Programs that could earn you loan forgiveness after 20 years

Graduating college came as a brief sense of relief. Yes, I wouldn’t have homework anymore. Yes, I wouldn’t have to juggle work and getting to class. Yes, I wouldn’t have to be surrounded by kids in their early 20s who, for the most part, had no idea what it was like to have a family to care for outside school. But graduating also meant the start of the six-month window that is a generous grace period the government allows you before you are expected to begin paying back your student loans.

I’d been making payments on student loans that I took out in my early 20s, during the times I wasn’t enrolled in college. I knew there were ways around making full payments by deferring payments and claiming temporary financial hardship. Other than that, I wasn’t sure what I’d do to repay the $50,000 I took out to pay for my tuition and living expenses while obtaining my bachelor’s degree.

The government, as always, kept me abreast of how much money I owed. When October came closer, I got my first bill for repayment under the standard 10-year repayment plan, and my monthly amount was around $500. At the time, that was the total of my income.

The e-mails and letters they sent were clear in urging me to apply for a repayment plan based on my income. I learned the repayment was actually calculated through my discretionary income: the difference between my total adjusted gross income and 150% of the U.S. Department of Health and Human Services’s poverty guideline for my family size. In applying for the income-based repayment plan, I currently make monthly payments on time and pay exactly $0.00. That is how much I am billed because my income is low enough to qualify for that amount. After 20 years of interest-based payments, the remaining balance on my loans will be forgiven.

There are four types of programs available:

  • 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)

All have various rules and regulations on how they work, so look into them carefully and talk with your loan officer to figure out which program works best for you.

I highly recommend checking out this helpful PDF with income-driven repayment plan information and this PDF, which features helpful FAQs for more in-depth explanations of what these plans entail. It mainly boils down to what kind of loans you have, when you borrowed the money, and how and if you see your income and/or family increasing.

But the kicker is that if you make on-time payments for 20 to 25 years (even if your payments are $0 and depending on your plan), the remaining amount of student loans will be forgiven.

There are a couple of cons to this. One is that your interest increases rapidly. On most of these plans, once you start making regular payments, if your interest payment is more than the amount of your loan payment, the government will cover the difference in varying amounts depending on what program you signed up for. Another potential con is that you would have to pay income tax on the amount of loan forgiveness you received.

A major bonus to income-based plans is that payments made count toward the 120 qualifying monthly payments required to receive a total loan forgiveness through the Public Service Loan Forgiveness Program. This program awards loan forgiveness to anyone who diligently works in public service, either in social health fields or for a nonprofit organization.

The best part about these programs is that as your income grows, you can still qualify. Your payment will no longer be based on your income and will divert back to the standard payment amount in the 10-year repayment program. At this time, you will still be making payments under the income-based program, still qualifying you for the loan forgiveness after 20 years (25 if you have a graduate degree).

When I applied for these programs, they were extremely simple. I even called my loan officer a few times for reassurance, and they were very helpful in getting me matched with the right program. As a Solo Mom, there’d be no way I could have been making an income equivalent to the full amount I owed in loans. I don’t even want to think of what would have happened if I’d been responsible for such a large payment. I’ve known of friends getting their wages garnished to pay back loans they’d fallen behind on. There has been a large outcry for student-loan forgiveness in recent years, and not much has been said about the benefits of these incredible programs. I highly recommend checking them out to see if you qualify.

Stephanie Land, has a bachelor’s degree in English and creative writing from the University of Montana. She and her two daughters live in Missoula, Montana. Read more of her story at You can follow her on Twitter at @stepville.

Please feel free to contact us with any comments or questions.

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