Speaker 1: Hey, SmartyPants. Income-driven student loan repayment plans may drop your student loan payment to zero dollars per month, and there are four different payment plans to choose from. They all have benefits and drawbacks and work differently, and honestly, digging into the details kind of makes you pine for the easy days of, like, college-level quantum physics. But if you're struggling to repay your student loans, or if you're going for public service loan forgiveness, you need to understand IDR repayment plans, otherwise known as income-driven repayment plans. Luckily, you landed on this video. Watch this video through to the end to get clarity and confidence on whether you should be on an IDR plan and which IDR plan is right for you. Hey, I'm Kate the Money Librarian. If you want to get better with your money, but you don't trust financial gurus, you are in the right place. Be sure to subscribe. This is educational and informational. Unless you want to watch an hour-long video about this topic, I'm going to be glossing over some details. To find out all the details, go to the Department of Education's website and contact your student loan servicer to find out more before you make any moves on your student loans. Okay, the term income-driven repayment is an umbrella term for any student loan repayment plan that is based on your income and household size, rather than your loan balance and interest rate. When we say income-driven repayment plan, or IDR for short, we are referring to the save plan, which took the place of the repay plan, talking about the income contingent repayment plan, the pay-as-you-earn plan, and the income-based repayment plan. If that sounds confusing, that's great. It means you're actually paying attention. So yay, gold star. Although these have really similar sounding names, they all vary in their details, which can make a huge difference in your monthly payment and if or when you get forgiveness. So let's talk about all the things these IDR plans have in common. You must be on an IDR plan if you're going for PSLF. Otherwise, you'll either pay off your loans before you can get forgiveness, because you'd be on the 10-year plan, or your payments won't qualify for PSLF if you're on, like, the graduated or extended plan. You've got to be on an IDR plan if you're going for PSLF. Two, all these plans require you to recertify every year because what you pay is based on your family size and income, which of course changes pretty frequently, so they make you re-up every single year. Three, if your financial situation changes for the worse, you can reapply at any time and let them know your new income and they'll adjust your payment appropriately. Four, all these IDR plans will forgive any balance remaining after you've paid your required minimum payment for anywhere between 10 and 25 years, but since your payment is based on your income, it's possible to pay off your loan balance before the forgiveness time comes around. And five, economic hardship deferment, periods of repayment under certain other repayment plans, and periods when your required payment is zero will count towards your total repayment period. All of this sounds great, like, yay, but we have to talk about the big drawbacks of IDR plans, because it isn't all puppies and rainbows. Hey, I have a student loan forgiveness cheat sheet that outlines 13 different federal student loan forgiveness programs, what they are, who qualifies, even common traps to watch out for, so get it, link in the description. IDR plans are great because they lower your monthly payment, but there is some serious rain headed for our lower monthly payment parade, so let's talk about it. If the balance of your student loans are forgiven under IDR forgiveness after January 1st, 2026, you'll have to pay federal income tax on that amount, and possibly state income tax as well. PSLF forgiveness is a different thing, it is not taxed on the federal level, but some states do tax it, you have to check with your own state on that one. It's possible, since IDR plans stretch your loan out for like 20 to 25 years, that instead of the standard 10-year plan, that it could cost you way more in interest, like thousands, if not tens of thousands of dollars more in interest over the course of that much longer repayment period. The math of this is going to depend on your loan balance, your interest rate, your yearly income, which is going to change over the years, your household size, and which plan you choose. Before you ask me in the comments which one is best for you or if this is right for you, just know that because of so many variables, including the impossibility of knowing your future income, I can't tell you definitely that you'll save money on one of these plans or definitely this will be a waste of your money. You just have to use the information available to you to make the best choice that you can. You can use the loan simulator from FedLoan, which I'll link to, or like a million different online calculators to help you understand if you're going to be paying a little bit more in interest or like a lot more in interest by using an IDR plan as compared to the 10-year standard plan. Let's talk about the IDR plans themselves. Save is the shiny new program and like, it has a lot going for it. Honestly, comparing all these IDR programs sort of reminds me of the SNL Chippendale skit where Patrick Swayze and Chris Farley are both up for Chippendale's chops. The Save plan is Patrick Swayze. It's just so obviously the right choice in so many ways, which I'll go over in a second, but it isn't right for everyone. So watch through this whole video to make sure that you shouldn't be on one of the other plans. I have another video that is a deep dive on Save. I'll also put a link in the description so you can watch that. Let me break it down for you, like the really big highlights here. Okay. Eligibility for the Save plan. There's no income limits. You can get on the Save plan on any income, but if you have a really high income, it might actually be more than your standard 10-year plan, the monthly payment. Any loan that was given to the student is eligible. You may have to consolidate them first to direct loans. No parent loans are eligible for this plan. Maybe if you do the double loophole consolidation, which I'm going to make another video on it later, so be sure to subscribe. So the big benefits here. Because of the way the payments are calculated, this is most likely your lowest monthly payment. Your balance can never go up, even if your payment is $0 a month, as any interest above what your payment is is going to be waived every single month. This is the only plan that waives interest not covered by your payment, guaranteeing the balance will never go up. Three, if you took out less than $12,000, you can get forgiveness in 10 years. The only other way to get forgiveness in just 10 years is through PSLF. Add a year every $1,000 above that. So if you took out initially $13,000 in student loans, then it takes 11 years, $14,000, 12 years, you get the point. If there's a balance after 20 years for undergrad, 25 for grad school, that balance is forgiven. Okay, some drawbacks. It is possible at some point your payment could be higher than under the standard 10-year plan if you have a high enough income, making it not a great option. If this is the case, you may switch to the 10-year plan, losing forgiveness, and possibly pay for over your intended 20 to 25 years. How it works is that you'll pay 10% of your discretionary income. And for this plan, that's anything above 225% of the poverty line. I have a video that walks you through calculating your payment. If you're interested, I will link below. In the summer of 2024, you're going to pay 5% of your discretionary income for undergrad loans, still 10% for grad loans, and a weighted average if you have both undergrad and grad loans. Big notes. If you're consolidating for any loan that isn't a direct loan, you need to do it in 2023 so that your previous payments will count towards the 20 to 25 years forgiveness. Next plan is the pay-as-you-earn, otherwise known as payee. Eligibility for payee, the payment has to be less than it would be on the 10-year plan and, quote, You must have had no outstanding balance on a direct loan or FFEL program loan when you received a direct loan or FFEL program loan on or after October 1st, 2007. And you must have received a disbursement of a direct loan on or after October 1st, 2011. Eligible loans, direct loans, not in default, are eligible except direct plus loans made to parent borrowers and direct consolidation loans that repaid a direct or FFEL plus loan made to a parent borrower. So if consolidated, FFEL program loans and Perkin loans are eligible for payee. The big giant benefit with this one, like, why would you bother with payee when save is so great? Because you can get grad school forgiveness in 20 years on payee as well as IBR, which I'll talk about next, but that one has some different rules. So anyways, all the other I-D-R forgiveness plans get you grad school loan forgiveness in 25 years. So in some ways, this cuts five years off your loans. Drawbacks is that it's probably going to be a higher monthly payment than on save. How it works, you pay 10% of your discretionary income, but it's calculated as 150% of the poverty line. So chances are you'll pay a lot more per month than on save. All right, so follow me here. This is actually some pretty important math that you need to know. Payee, like IBR, uses 150% of the poverty line to determine the amount they won't touch, whereas save uses 225% to determine what they won't touch. In real terms, this means for a one-person household on IBR or payee, they won't touch the first $21,870. But on save, they won't touch the first $32,805, almost $10,000 more per year. So you can see why that actually does make a difference. Big notes here. Payee is going to be closed to new applicants after July 1st, 2024. So if this is right for you, get on it ASAP. The next program is IBR, B-E-R, income-based repayment. Eligibility. Payment must be lower than if you are on the 10-year plan. Eligible loans is basically any federal student loan made to the student, including Perkins loans if consolidated. Again, no parent loans are eligible. Big benefit here. It is the only I-D-R plan that FFEL loans can get on. So unless you consolidate your FFEL loans to direct loans, and again, to have your previous payments count towards forgiveness, you have to consolidate FFEL loans before the end of 2023. It can take a couple of months for the paperwork to go through. So if that is the right move for you, do it now. You can get forgiveness in 20 years. If you're a new borrower on or after July 1st, 2014, which includes grad school loans. So this and payee are the only two that give grad school loan forgiveness in 20 years. But to get this, you have to have been a new borrower on or after July 1st, 2014. It's 25 years forgiveness if you're not a new borrower on or after July 1st, 2014. Big drawback, probably a higher monthly payment than on the save plan. How it works is they take 10% of your discretionary income. Again, calculated at 150% of poverty level if you're a new borrower on or after July 1st, 2014, but never more than the standard 10-year plan. And it's 15% of your discretionary income if you're not a new borrower on or after July 1st, 2014. The people who should really be considering this are new borrowers after July 1st, 2014 with grad school loans, as you can still pay 10% discretionary income up to the standard 10-year plan cost, and you get forgiveness after 20 years instead of 25 with save. That said, the monthly cost on save may be significant enough to want to pay for an extra five years. Unfortunately, you don't know what you'll be making in the years to come. There's just a lot of unknowns. You'll have to make your best guess. Sorry. Then there is I see, see, see, our income contingent repayment. Okay, the only people looking at this plan are if you have parent plus loans. Remember how I kept saying, like, not eligible for parents, not eligible for parents? This one is, but it kind of sucks. All right, so, all right, benefits, you get forgiveness in 25 years, but it is by far the most expensive of the income-driven repayment plans. How it works, you pay the lesser of either 20% of your discretionary income, which they are using 100% of poverty guidelines to determine, so it's a lot of money, or you pay according to a 12-year repayment amount multiplied by an income percentage fact. It's super confusing. Like, you have to use a loan simulator to figure out what your payment would be on this one. Parent plus loans are an absolute scourge on parents. I really do not like them. Know that you can have these forgiven in 10 years with public service loan forgiveness. So, if you are a parent struggling with these, if you work for a non-profit, or if you work for the government, you can get your parent plus loans forgiven through PSLF. Do watch my other video on PSLF for more information on that. I'm also going to do a video on the double consolidation loophole, so be sure to subscribe. Hey, I'd really appreciate it if you could like this video so more people can find it, and if you know somebody struggling with their student loans, do them a solid and share it with them. They even have a little button for it, right there. Or like, here? Here? Might be over here. I'm not sure. It's like the little box with the arrow. Anyways, thanks for watching. Cheers.