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Income Contingent Repayment Overview

September 13, 2011

Income Contingent Repayment

Income contigent repayment on student loans is a payment option for federal loans via the US Department of Education specifically for Direct Student loans as well as direct loans that have been consolidated. The income contingent repayment option was created to make the lives of students working in both jobs with low income as well as public services jobs a lot easier. This is done by taking into account both the size of your income as well as the size of your family and factoring in a affordable payment total that will cater around these two parts of your life, and can be adjusted annually if these two categories happen to change.. More information is discussed below.

Income Contingent Repayment

Income Contingent Repayment Major Information

  • The maximum repayment period of the income contingent repayment option is 25 years, in which if a person stays faithful to paying each month, and there happens to still be debt at the end of the 25 years, their debt will be wiped away and become considered as taxable income. So if there is 10,000 left on your debt, you will be taxed as if you earned 10 grand that year.
  • Loans must not be in default to take advantage of income contingent repayment.
  • If you choose to work a public service job under the income contingent repayment option, you will have your loan debt cancelled after 10 years on time payments while working the public service job.
  • Payments can be as low as 5 dollars per month.
  • You are not locked into the 25 year repayment plan. If you are able to pay more down the line, you are able to do so without being hit with a penalty, which will help you get out of debt a lot faster.
  • Although the process of figuring out what your monthly payments will be is complex, the montly payments usually equal to about 20 percent of your montly income, or the amount it would cost to ultimately pay back your student loan debt in 12 years.
  • If you are unable to pay your interest payments, the total is added to the principal amount of the loan each year, which is capitalized. But the good thing about this is that there is what is called a interest cap at 10 percent of what the original total of your debt was, meaning that once your reach the 10 percent mark, unpaid interest continues to be added, but isn’t compouned.
  • The interest rate on income contigent repayment is based off the average of average interest rates that you are using on income contigent repayment and are placed at a fixed rate that will never change throughout the life of your repayment.

Income Contigent Repayment Conclusion

This is a main overview about income contigent repayment on student loans. If you are interested in using income contigent repayment on your loan debt, you can inquire about it directly through your lender who will be able to get you started. If for any reason they do not allow you to use IBR for your loans, you can contact what is called FSA Ombudsman who is dedicated to helping students work out any type of dispute related to their student loan and are part of the US Department Of Education. Contact information for them is  1 877 557 2575.