April 15, 2014
Income-Driven Repayment Options in the US
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TICAS recently published a white paper entitled “Should All Student Loan Payments Be Income-Driven? Trade-Offs and Challenges.” The white paper does a great job of summarizing existing income-driven repayment (IDR) plans that are available to students in the US (see the table below, which was drawn from page 4 of the report). TICAS highlights the complicated nature of many of the IDR options, and questions whether the US should automatically enroll students in IDR, as is the case in the UK and Australia. While automatically enrolling borrowers in IDR may help reduce default rates and lessen the burden of student loans, it may also increase the time horizon for paying off loans, thereby increasing the amount that borrowers ultimately pay over the lifetime of the loan.
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|
Summary of Existing Income-Driven Repayment Plans in the US |
||||
|
|
Available |
Eligibility |
Monthly Payment Cap |
Discharge After |
|
Income-Based Repayment (Classic IBR) |
Since 2009 |
All borrowers with federal student loans (Direct or FFEL), new or old, with a partial financial hardship (PFH). |
15% of discretionary income |
25 years |
|
Income-Based Repayment (2014 IBR) |
Starting July 2014 |
Borrowers who take out their first loan on or after July 1, 2014, and have a PFH. |
10% of discretionary income |
20 years |
|
Pay As You Earn (PAYE) |
Since late 2012 |
Direct Loan borrowers who took out their first loan after Sept. 30, 2007 and at least one after Sept. 30, 2011, and have a PFH. |
10% of discretionary income |
20 years |
|
Income-Contingent Repayment (ICR) |
Since 1994 |
Borrowers with Direct Loans, new or old; no PFH requirement. |
The lesser of: 20% of discretionary income and 12-yr repayment amount x income percentage factor |
25 years |
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For more information on the details of IDR and the benefits and challenges of the system, please check out the TICAS report.