{"id":358835,"date":"2023-01-10T14:07:10","date_gmt":"2023-01-10T21:07:10","guid":{"rendered":"https:\/\/www.creditrepair.com\/blog\/?p=358835"},"modified":"2023-01-10T14:07:12","modified_gmt":"2023-01-10T21:07:12","slug":"income-driven-repayment-credit-score","status":"publish","type":"post","link":"https:\/\/www.creditrepair.com\/blog\/credit-score\/income-driven-repayment-credit-score\/","title":{"rendered":"Does income-driven repayment affect your credit score?"},"content":{"rendered":"\n
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Disclosure regarding our editorial content standards<\/a>.<\/p>\n\n\n\n

If student loans feel like the barrier between a healthy financial future and where you are now, you\u2019re not alone. The Federal Student Aid reported<\/a> 11.5 million people with outstanding Federal Family Education Loans (FFEL) alone as of Q2 2020. Luckily, federal student loans come with options for managing your debt. A popular option among student loan recipients is income-driven repayment. <\/p>\n\n\n\n

With this type of repayment method, the remaining balance of your debt could be forgiven after the allotted time, but not without you paying income tax on that balance. The question at the forefront of many postgraduates\u2019 minds then is, does income-driven repayment\u00a0affect my credit score<\/a>? The program itself does not, but the results of changing your payment structure could come back to haunt you if not managed properly.<\/p>\n\n\n\n

What does income-driven repayment mean? <\/h2>\n\n\n\n

Income-driven repayment (IDR) is a type of plan that reestablishes your student loan payments<\/a> based on your discretionary income and family size. The payment can increase or decrease annually depending on changes to each of these factors. The remaining balance at the end of the loan is generally forgiven. Keep in mind that you\u2019ll typically pay income tax on the forgiven balance, plus you\u2019ll end up paying a higher interest rate over time because you\u2019re paying a lower amount per month. <\/p>\n\n\n\n

There are four types of income-driven repayment plans, including the Income-Based Repayment Plan (IBR Plan), the Income-Contingent Repayment Plan (ICR Plan), the Revised Pay As You Earn Repayment Plan (REPAYE Plan) and the Pay As You Earn Repayment Plan (PAYE Plan). While each program has its own eligibility requirements, most federal student loans qualify for at least one. <\/p>\n\n\n\n

Does income-driven repayment affect your credit score? How?<\/h2>\n\n\n\n

Income-driven repayment doesn\u2019t have a direct impact on your credit score. You aren\u2019t opening a new line of credit or adding another loan. However, it can affect your ability to qualify for new credit cards, loans and lines of credit. This is because it changes the repayment term for your student loans. On a standard repayment plan, the payment term lasts for 10 years. Income-driven plans have terms\u00a0ranging from 20 to 25 years<\/a>.<\/p>\n\n\n\n

With a longer repayment term, your loan balance doesn\u2019t decrease as fast as it would with the standard term. If you apply for new credit, the lender may deny your application due to the amount of money you owe compared to your original loan balance.<\/p>\n\n\n\n

How does income-driven repayment work?<\/h2>\n\n\n\n
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Income-driven repayment works by using your discretionary income and family size to determine your monthly student loan payment. Federal Student Aid offers four income-based repayment plans:<\/p>\n\n\n\n