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Student Loan Payment Options

Student loans can be overwhelming, especially in today's economy where there are over $1 trillion of student loan debt in America. Borrowers who are just out of school and need to begin to think about paying off their loans should keep in mind that there are multiple payment options out there. Many people are in different financial situations and along with the right payment plan one can find loan payments less stressful.

With a Direct Loan a borrower can qualify for Income Contingent Repayment (ICR). This option considers payments based off of income and balance of loan. Parent PLUS loans cannot use the ICR repayment plan; however a consolidated loan that contains Parent PLUS is eligible for ICR.

Another payment option for student loans is Income Based Repayment (IBR). IBR became effective in 2009. It is useful for those who qualify if the IBR payment is less than the 10-year standard student loan repayment. A restriction to qualify for IBR is if the loan is a Perkin's loan. However, if the Perkin's loan is consolidated than it can be considered for the IBR option. Parent PLUS loans do not qualify, even if they are consolidated.

When it comes to filing for Income Based Repayment, declaring family size includes all dependents supported at least half-time, regardless of tax status or physical custody. If a married couple wants to file for IBR together, both incomes will be used in calculating monthly payments. If married and a couple wants to file separately, only the borrower's income will be used in decided on payments.

Anew payment plan, which became effective in 2012, is Pay As You Earn (PAYE) is. PAYE takes 10% of a borrower's disposable income and puts it toward paying off the student loans. This option decreases forgiveness time from the standard 25 years, to 20 years. To be able to qualify, a loan cannot be taken prior to October of 2008 and new loans need to have originated after Fall 2011. Similar to IBR, PAYE cannot be used with Parent PLUS loans.

Knowing which payment plan is best for you to pay off loans realistically and quickly as possible is important in order to avoid going into default due to late payments and overwhelming interest rates. One might consider contacting an attorney who specializes in student loans debt if they find themselves facing problems such as default, which can sometimes lead to bankruptcy. A qualified attorney can help one get out of debt and back on track to a financially stable life.

Works Cited:

Cohen, Joshua R.I. Student Loan Law Workshop. Law Office of Joshua R.I. Cohen, LLC, 20 Apr. 2013.

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