I have been writing a series of blogs addressing issues with student loan debt. As previously mentioned, student loan debt has surpassed credit card debt in this country and is second only to mortgage debt. It is a problem that is not going away anytime soon. The federal government continues to seek solutions for the repayment of this debt load and, by executive order, the options for repayment are ever evolving. There is a wonderful article addressing repayment of federally guaranteed student loan debt in the latest issue of the Consumer Bankruptcy Journal which is published by NACBA, the national association of consumer bankruptcy attorneys. In his article, author Jay Fleischman sets out the varied repayment options for federally guaranteed student loans. The traditional repayment plans include the Standard, Graduated and Extended plans. The Standard Repayment Plan provides a ten (10) year repayment period where the student loan debt is paid back with a fixed monthly payment over ten years. For example, if you had $50,000 in student loan debt at an interest rate of 6%, the monthly payment under the standard repayment plan would be $555.10 for ten years. The Graduated Repayment Plan still provides a ten year repayment period but, as the name suggests, the payments can be graduated to be less at the beginning of repayment and then increased over time. The Extended Repayment Plan provides a twenty-five (25) year repayment period. This plan will also allow the flexibility of fixed or graduated monthly payments during the twenty-five (25) year period.
Beyond the traditional repayment plans for federally guaranteed student loans, we have the income driven categories. The original income driven options include the Income Based Repayment (IBR) and the Income Contingent Repayment (ICR) plans. There are two different repayment periods under IBR, depending on when you first borrowed money on a federally guaranteed student loan. If you had a balance on a federal Direct Loan or FFEL Loan as of July 1, 2014, then under IBR the repayment period would be 25 years. If you owed no balances on the above referenced federally guaranteed loans as of July 1, 2014, and thereafter obtained your first federal Direct Loan, the IBR repayment period is 20 years. Whatever balance remains on the federally guaranteed student loan at the applicable 20 or 25 year mark is thereafter forgiven, ie the remainder of the balance is wiped out. (Please be aware student loan balances that are forgiven are likely to be determined to be taxable income and you should consult your tax professional for any possible tax consequences).
Under ICR plans, the repayment period is 25 years, with any balance being forgiven at the conclusion of that repayment period. Generally any federally guaranteed student loan qualifies for ICR plans, regardless of the amount of income you earn. The monthly payment will be based upon the amount of your income, your family size and the total amount you owe on your federally guaranteed student loan and is subject to an annual adjustment.
The newest options in the student loan repayment arsenal include the Pay-As-You-Earn Plan (PAYE) and now the Revised-Pay-As-You-Earn (REPAYE). The repayment period for PAYE is 20 years, after which any balance will be forgiven. To qualify you must not have owed a balance on a Direct Loan or FFEL Loan as of October 1, 2007. So if you first took out federally guaranteed student loans after October 1, 2007, you may qualify and the monthly payment will be based upon your income and your family size and will be subject to an annual adjustment.
Currently on the horizon is the REPAYE plan which should be available for student loan borrowers beginning in 2016. This repayment plan is an effort by the Obama administration to provide better repayment options to all who carry student loan debt. Under REPAYE, monthly payments will be capped at 10% of the borrowers discretionary income, regardless of when the student loan debt was incurred. If the loan was used for an undergraduate degree, the repayment period under REPAYE will be 20 years. If the loan instead was for a graduate degree, the repayment period will be 25 years. REPAYE has the potential to provide substantial savings for student loan borrowers and we will keep you updated on its progress towards approval.
Unlike filing for bankruptcy, applying for and receiving a plan for addressing student loan debt can be done without the help of an attorney. However, the road to achieving this goal is still difficult to travel. If you would like the assistance of an attorney to help you navigate this terrain, please contact one of our locations nearest you in Alabama, Mississippi or Tennessee for a free, confidential consultation.