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Choose Your Loan Repayment Plan Wisely

The amount you repay for your education loans, given delinquency rates, could differ based on what plan you choose, new data released by the Department of Education suggests.

The report found that borrowers under the age of 24 have the highest 31-day-plus delinquency rate at 18.2%. For borrowers age 62 and older, the number is 13.7%.

Income-Driven Repayment Plans

According to U.S. News, the Department of Education offers a number of income-driven repayment plans, or IDR plans, that forgive some of your student loans down the line.

One plan sticks out amongst the list. The Revised Pay As You Earn plan (REPAYE) has the lowest 31-day-plus delinquency rate at 4%, according to the Education Department’s student loan portfolio reports.

REPAYE Limits Payment Amount

The REPAYE plan limits your payments to 10% of your discretionary income. Eligible individuals include all Direct Loan, Stafford, and Graduate PLUS borrowers, according to Student Hero.

Under the REPAYE plan, balances due for your undergraduate degree are ultimately forgiven after you make 20 years of eligible payments, according to Student Hero.

However, as U.S. News notes, there’s a slight requirement that’s important to know.

The REPAYE Plan requires borrowers to submit their income and household size information once a year by the annual deadline. If this isn’t submitted, the Department of Education enters you into an alternative repayment plan, where monthly payments could increase.

According to U.S. News, the alternative payment plan isn’t based on your income, but rather, require that students repay the full loan in either “10 years from the start of the alternative plan or from the end date of the 20 or 25 years of the REPAYE period.”

Borrowers under the alternative repayment tend to default at the highest rate, 29%, according to U.S. News.

For more information about Income Driven Repayment Plans, check out the US Department of Education’s website.

Sources: U.S. News, Student Hero, US Department of Education