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January 14, 2020

What Are The Financing Options for Graduate School? (Part 2)

Income-Driven Repayment Plans for Federal Loans

In the last blog post, we detailed the variety of repayment plans available for students holding federal loans. A category of repayment plans, Income-Driven Plans, would mean paying a monthly amount based on factors such as income, family size, and state of residence, rather than based on the loan balance. The idea behind this program is similar to ours – how much you pay should depend on how much you make, not how much you owe.

However, Income-Driven Repayment options vary based on the type of loan that you hold. Some of these plans also require you to demonstrate a financial hardship to be eligible. Monthly payments under these Income-Driven Plans are often lower than they would be on a traditional repayment plan, but you will have to make payments for longer as the interest accrues on the original loan balance. Thus, you will end up paying more over the life of your loan by switching to an Income-Driven Plan.

Stafford Loans are eligible for:

1. Income Based Repayment (IBR)**

  • Monthly payment amount: 10 or 15% of discretionary income*
  • Discharged after: loan balance paid in full or 20-25 years of monthly payments***

2. Income Contingent Repayment (ICR)

  • Monthly Payment Amount: The lesser of the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income OR 20% of discretionary income*
  • Discharged after: Loan balance paid in full or 25 years of payments***

3. Revised Pay As You Earn (REPAYE)**

  • Monthly payment amount: 10% of discretionary income* each month,
  • Discharged after: Loan balance paid in full or 25 years of payments***

Grad PLUS Loans are eligible for:

1. Income Based Repayment (IBR)**

  • Monthly payment amount: 10 or 15% of discretionary income*
  • Discharged after: loan balance paid in full or 20-25 years of monthly payments***

2. Income Contingent Repayment (ICR)

  • Monthly Payment Amount: The lesser of the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income OR 20% of discretionary income*
  • Discharged after: Loan balance paid in full or 25 years of payments***

* Discretionary Income is defined as the amount of adjusted gross income (AGI) above 150% of the poverty level for the borrower’s household size. For ICR, discretionary income is defined as the amount of AGI above 100% of the poverty level for the borrower’s household size.

** It is important to note that borrowers who wish to switch to the IBR or REPAYE programs must demonstrate a PFH, or “partial financial hardship,” meaning that their calculated payment based on income and family size is less than what they would pay under the fixed 10- year repayment plan.

*** If you have not paid off your loans in full through monthly income-based payments under these programs, the remaining loan balances will be discharged after 20 to 25 years of payments depending on the plan. Such loan discharges are taxable events, and are treated as taxable income. This means that whatever outstanding loan balance you have that will be forgiven, will be treated as taxable income, and you will be responsible for paying taxes on the forgiven balance.

How are Stride’s ISAs Different from Federal IDR Programs?

Federal IDR programs are a good option for some students who already hold government loans to lower their monthly payments. However, IDR programs are significantly different from an ISA. ISAs don’t have interest or an interest rate, because ISA’s aren’t debt. Federal IDR programs are simply a different payment structure for paying off the same total debt. The total amount that an individual will pay is still calculated based off of having a loan with an interest rate. The longer students take to repay the lenders, the more money they will owe. With an Income Share Agreement, however, the payment is always a set percentage of your income, for a set period of time, as outlined in the initial contract.

Not all students are eligible for Income-Driven Repayment programs. To enroll in the IBR or REPAYE programs, students must have a high enough debt-to-income ratio. At Stride Funding, everyone who is eligible for our ISA can have one, not just those with demonstrated financial need, as is the case for many government income-based repayment programs.

With a Federal Income-Driven Repayment Plan, payments can fluctuate significantly based on factors such as household income, family size, and state of residence. This is never the case with ISAs. In an Income Share Agreement, the student pays a fixed percentage of their income for a fixed number of payments, regardless of income fluctuations. This percentage doesn’t change, and the number of payments isn’t increased.

Apply for an ISA Today

Do you really want to pay loans for 20-25 years before they are forgiven, as is the case with government IDR programs? Our ISAs are in terms of years – not decades. With an ISA from Stride Funding, you are not only funding your future, but joining a community of other students like yourself– the Stride Squad! We are here to support you however we can.

If you are interested in using a Stride Income Share Agreement to fund your education, apply today. You can also contact us at hello@stridefunding.com.