After graduating college, the next big step you will take is landing a full time job. Unfortunately, many college graduates do not get to be too selective about their first job after completing college because they have the burden of student loan repayment hovering over them. According to American Student Assistance (2013), “approximately 41% [of college graduates] say they have had to take a job that doesn’t require their college degree just to pay the bills” (pg. 4-5). A potential reason why this number is so high is because many students do not realize that there are income-driven repayment plans that can help students bide their time until they are able to find a job in their career path.
There are three kinds of income-driven repayment plans: Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), and Pay As You Earn. All three plans offer a wealth of information too large for the scope of this article, but we will cover the basics. It is recommended that you delve deeper into any of these three plans if you feel they may be beneficial to you.
The ICR is a repayment plan for Stafford Loans and student PLUS loans, as well as Consolidated Loans. Payments for these plans are based on family size and adjusted gross income (AGI), and payments will change as those factors change. Some things to keep in mind about this repayment type are that you will typically pay more interest than a standard plan, and that the remaining balance on the loan after 25 years of repayment will be forgiven.
The IBR is a repayment plan for Stafford Loans, student PLUS loans, and Consolidated Loans. Your monthly payments will be no more than 15% of your discretionary income, and will change as your income and family size change. Your monthly payments will be lower than the average standard repayment plan, but you will probably pay more interest. Again, any remaining loan balance after 25 years of repayment will be forgiven.
Lastly, the “Pay As You Earn” repayment plan is for Stafford Loans, student PLUS loans, and Consolidated Loans. Your monthly payment will be no more than 10% of your discretionary income, and will change as your income and family size change. Your monthly payments will be typically lower than a standard plan, but your interest paid will typically be higher. After 20 years of repayment, any balance due will be forgiven.
An important thing to remember with all of these plans is that they are not an “easy way out.” There are stipulations that you should fully understand before pursuing one of these options. If you are serious about student loan repayment, but want the opportunity to find a job in your career field without feeling like you need to take the first job that comes around, one of these options may be right for you. Again, as with any major financial decision, make sure you do your homework before committing to a repayment plan.
By Ryan Laspina
Compliance and Default Prevent Specialist at American Public University System