New Monthly Payment Formula For U.S. Direct Loans and FFELP Loans
You may qualify for a lower monthly payment formula in the new student loan repayment program. But it can only be done with federal direct student loans FFELP loans, Grad PLUS loans and federal consolidation loans that do not include Parent PLUS loans. Federal Perkins student loans require Direct student loans consolidation.
The income-based student loan repayments schedule is a godsend for graduates in fields without recession proof jobs or with significant college loan debt. In this plan, your monthly payment formula is limited to 15% of the amount that your adjusted gross income exceeds 150% of the poverty line, divided by 12 (months).
So, for instance, if you are single and your income is $16,245 (contiguous 48 states- the poverty line is higher in Alaska and Hawaii), you would pay $0.
If your income is more than that, than the 15% of your income above that figure (divided by 12) would be your monthly payment.
Your income is adjusted lower for increased family size.
Eligibility for this program will be determined by the amount of your loans relative to your income. If your payment under the standardstudent loan repayment program is more than 15% of your discretionary income, you will qualify. Your loan payment will never be more than it would have been under the standard repayment plan, unless you leave the program.
Your loan payment will be adjusted annually based on the documentation you supply.
After 25 years of payments, the remaining amount will be forgiven. (But it will be taxed as income.) For those employed in the public sector, loans will be forgiven after 10 years of payments. There is no federal student loan forgiveness under the extended or graduated repayment plans.
How to Figure Loan Payments Under the Income-based Repayment Program
These are the numbers used by the U.S. Department of Education to figure loan payments based on your income and family size:
| Family Size | |||||||
| Annual Income |
1 | 2 | 3 | 4 | 5 | 6 | 7 |
| $15,000 | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| $20,000 | $47 | $0 | $0 | $0 | $0 | $0 | $0 |
| $25,000 | $109 | $39 | $0 | $0 | $0 | $0 | $0 |
| $30,000 | $172 | $102 | $32 | $0 | $0 | $0 | $0 |
| $35,000 | $234 | $164 | $94 | $24 | $0 | $0 | $0 |
| $40,000 | $297 | $227 | $157 | $87 | $16 | $0 | $0 |
| $45,000 | $359 | $289 | $219 | $149 | $79 | $9 | $0 |
| $50,000 | $422 | $352 | $282 | $212 | $141 | $71 | $1 |
| $55,000 | $484 | $414 | $344 | $274 | $204 | $134 | $64 |
| $60,000 | $547 | $477 | $407 | $337 | $266 | $196 | $126 |
| $65,000 | $609 | $539 | $469 | $399 | $329 | $259 | $189 |
| $70,000 | $672 | $602 | $532 | $462 | $391 | $321 | $251 |
Student Loan Repayment Program… More info
The amount of your loans is irrelevant after you enter this program. Your payments will be the same as any other borrower in the program with the same income, (and family size) even if the total amounts of your loans are different.
If the monthly payment formula is not enough to cover the interest on your student loans, the interest will be paid by the government for up to three years. After that, the unpaid interest will be added to the principal balance of your loan.
Borrowers payments are applied in this order:
- interest
- fees
- principal
The monthly payment formula in the income based government student loan repayment program is designed to give you breathing room, rather than to pay down debt.
One thing to be aware of- your adjusted gross income does not take into account all the expenses that you will accumulate as the years go by. (mortgages, car loans, medical expenses, property taxes, personal loans, credit cards, etc.)
So, as your income (on paper, at least) grows, so will your loan payment even if it does not seem as though you have more money to spend on it.