Income Based Refund: Is It Right For You?

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The federal government offers four income-based repayment plans that can lower your monthly bills based on your income and family size. It could even be $ 0 if you are unemployed or earning less than 150% of the poverty line.

Switching to one of these plans is usually right for you in the following cases:

Here’s what you need to know about the different income-oriented plans before you sign up.

Need to Know for 2021 University Graduates

Check out NerdWallet and Inceptia’s guide to managing money and careers after college.

Which income-based repayment plan is right for you?

All income-based repayment plans share some similarities: each caps payments between 10% and 20% of your discretionary income and give up your loan balance after 20 or 25 years of payments. The four plans are:

The least confusing way to select a plan is to let your service agent place you on the one you qualify for and have the lowest monthly payment. You can choose this option when completing the Income Based Repayment Plan application.

But the plans have a few distinct differences. A specific one may be necessary, or better for you, in the following cases.

Payments under each income-oriented plan count toward the public service loan forgiveness. If you qualify for this program, choosing the plan that gives you the smallest payout is probably your best bet.

Before signing up for an income-oriented plan, connect your loan information to Federal Student Aid. Loan simulator. This will give you a good idea of ​​your monthly bills, overall costs, and discount amounts under each plan.

You must recertify your income and family size each year

To maintain your income-based reimbursement status, you must recertify income-based reimbursement every year. If your income changes, your payments will change as well. If you miss the recertification deadline, you’ll have to pay more – likely the standard repayment plan amount – until you re-enroll. Any interest will generally be capitalized or added to your principal balance at this point.

Disadvantages of income-based reimbursement

While income-based repayment options can make monthly student loan payments more affordable, these programs have some potential drawbacks.

Income-driven plans extend your repayment term from the standard 10 years to 20 or 25 years. Since you will be paying off your loan for longer, more interest will accrue on your loans. This means that you could pay more under these plans, even if you are eligible for a pardon.

You may repay your loan before the forgiveness begins. But if you have a balance left at the end of the repayment term, the the amount remitted will be taxed as income unless you are eligible for the civil service loan forgiveness.

Yes you are married your spouse’s income may also be factored into the amount of your student loan payments. If you file taxes jointly, your joint income will still be used to calculate payments under any income-oriented plan. But if you file taxes separately from your spouse, only REPAYE will use your two incomes to calculate the payments.

How to Apply for Income Based Refund

You can apply for a refund based on income at studentsprêts.gov or by sending your student loan manager a paper application form. You can change your student loan repayment plan at any time.

To complete the application, you will need to provide information about your family size and your most recent federal income tax return or transcript. If you have not declared taxes, you will need to submit other proof of any taxable income you have earned in the past 90 days, for example:

  • A letter from your employer stating your gross salary.

  • A signed statement explaining your income, if official documentation is not available.

Your manager can put your loans on hold while your application is being processed. You are not required to make payments during forbearance, but interest will accrue on your loan. This increases the amount you owe.

Can’t afford an income-based refund?

Refinancing your student loans with a private lender could also reduce your monthly payments, depending on the terms of the new loan. Corn refinancing federal student loans can be risky as you will lose access to programs such as income-based repayment and loan cancellation. Make sure you are comfortable giving up these options before you refinance.


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