{"id":355600,"date":"2017-11-29T17:00:22","date_gmt":"2017-11-30T00:00:22","guid":{"rendered":"https:\/\/www.creditrepair.com\/blog\/?p=355600"},"modified":"2022-07-15T10:29:21","modified_gmt":"2022-07-15T16:29:21","slug":"what-is-a-debt-income-driven-repayment-plan","status":"publish","type":"post","link":"https:\/\/www.creditrepair.com\/blog\/credit-score\/what-is-a-debt-income-driven-repayment-plan\/","title":{"rendered":"What is a Debt Income-Driven Repayment Plan?"},"content":{"rendered":"

\"Debt<\/p>\n

With student loan debt now the second-highest category of consumer debt<\/a> in the nation, repaying those loans could become a major challenge for some people.<\/p>\n

If you aren\u2019t earning enough income to cover your federal student loan payments each month, your choices can feel grim. Either you struggle to make payments at the expense of other necessities, or you can risk becoming delinquent, or even defaulting, on your loan. In either case, you could end up seriously damaging your credit and having to repair your credit score<\/a>.<\/p>\n

Fortunately, there are more options to pay back loans than you might think. Some repayment options like deferment and forbearance allow you to temporarily stop making payments or reduce what you pay per month for a set amount of time. But another option you may not know about is an income-driven repayment plan.<\/p>\n

Let\u2019s talk about how this plan works and if it might be right for you.<\/p>\n

How income-driven repayment works<\/strong><\/h2>\n

An income-driven repayment plan resets your monthly payments and loan term based on your income.<\/p>\n

Your monthly payment is adjusted to a percentage of your discretionary income<\/a> and is determined by when you took out your first loan. If it was before July 1, 2014, your payments are capped at 15 percent. If it was on or after July 1, 2014, your payments are capped at 10 percent.<\/p>\n

The amount you pay per month can increase or decrease based on changes in your income or family size. Instead of paying your loan over 10 years (the standard term for federal loans), the term is increased. You can repay in 20 years if you borrowed on or after July 1, 2014, or 25 years if you borrowed before July 1, 2014.<\/p>\n

If there is any remaining balance at the end of the term, it\u2019s typically forgiven. But you will have to pay income taxes on it. And most people pay off their loans before they actually reach the point of balance forgiveness. Keep in mind that paying a lower amount per month means you\u2019ll end up paying more interest over time.<\/p>\n

Meeting eligibility<\/strong><\/h2>\n

In order to be eligible for income-driven repayment, you need to meet some criteria:<\/p>\n