A New Repayment Program Could Make Dealing With Your Student Loan Debt a Whole Lot Easier

If you’re not one of the millions of people in America dealing with crippling student loan debt, this article is not for you. If student loan debt is overwhelming and feels like it’s ruining your life, keep reading.

The US Department of Education just announced a new program that starts in December 2015 that allows borrowers to pay a set amount of their adjusted gross income rather than a pre-determined fixed amount. This can be good news if you’re struggling to keep up with your student loan payments or they take up a large amount of your income. (At this time of writing I haven’t seen a specific date on when the program launches.)

 

student loan repayments based on your income

Lucky for you, I’m a nerd and I’ve read through all the boring and incomprehensible jargon. Here are the highlights.

The amount you pay is determined on how much you make after taxes (line 37 on your 1040 tax return).
In the new program, you pay 15% of your income if you’ve had your loans since before July 1, 2014. If you got your loans after July 1, 2014, the amount is 10%. If you’re married, the percentage is the total amount of your joint income if you file together. That’s excellent news.

Even if you don’t finish paying them off in the time frame designated for each payment plan, the loans are forgiven. Gone. The only caveat is that you might have to pay income tax on the balance. This is a tricky wicket, but worth checking out if you’re buried.

There is even a handy loan repayment calculator that will populate your actual loans and calculate the amounts based on your income so you can make educated decisions. It shows all the different repayment programs

If you are really struggling, don’t forget that forbearance and deferment are your friends. The worst thing you can do is ignore your loans. When they go into default, it can mean wage and tax return seizure and/or garnishment.

Federal student loans don’t ever go away. They are nearly impossible to get rid of, even if you declare bankruptcy.

Here’s the website for all the details and a helpful PDF overview and a FAQ.

If you’ve got late payments and derogatory remarks on your credit from your student loans, public or private, we can help. Get in touch here and we will give you a free consultation on where we think we can get your score.

Cassie

Comments

comments

6 Comments

  1. Cassie Hewitt on November 4, 2015 at 7:38 pm

    Hi Cassie (love your name!)
    OK: I have about 45-50 grand in student loans. 🙁
    We recently discharged a Ch 7 bankruptcy that was converted from a Ch 13.
    It has been about a year and a half (I think?) that I have not paid on the student loan…I know I need to call them and get payments going again, but do you have any advice?
    Am I reading this right that I should do Income-Based repayment, and then after a certain amount of time, I’m done/loan is forgiven? (that seems too good to be true…)
    Anyway! Any thoughts you have would be greatly appreciated.
    Thanks! 🙂

    • Cassie on November 5, 2015 at 11:40 am

      Hey Cassie! I’ve gone years with out meeting an adult Cassie and there are four of us in Gena and Jordana’s group!

      The hardest part is always calling and finding out what your options are. I have 36k in student loans so I completely understand. Are you still eligible for forbearance or deferment? You can get an economic hardship deferment for many years. You can usually see all the options on your servicer’s site or directly on the Dept. of Ed.

      You’re probably pretty close to starting to get nasty grams from them about seizing your tax returns if you haven’t had a formal agreement in place. That’s not fun.

      I read the fine print over and over again and here is what the PDF says on the end of page 2 and beginning of 3.

      How long will I be in repayment under each plan?
      Income-driven repayment plans have different repayment periods (see the chart below). Under all three plans, any remaining loan balance is forgiven if your
      federal student loans are not repaid in full at the end of the repayment period. For any income-driven repayment plan, the repayment period includes periods of
      economic hardship deferment and periods of repayment under certain other repayment plans. Whether you ultimately have a balance left to be forgiven at the
      end of your repayment period depends on a number of factors, such as how quickly your income rises and how large your income is relative to your debt.
      Because of these factors, you may fully repay your loan prior to the end of your repayment period.

      This can be a really sweet deal if you’ve got a lot of debt. While there is chance you would have a tax burden for the amount unpaid, if you’re in a tax bracket and financial situation this makes sense it probably won’t be much of an impact. 25 years is a long time (and periods of forbearance and deferment count) so things could change but for now I think it’s the first one.

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