What is Income Driven Repayment?

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By : Raam Dhakad

KYD - Personal Finance

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Income-driven repayment plans are an alternative to federal student loans that use your income and family size to determine your monthly payments.

An income-driven repayment plan is a federal student loan repayment option that sets your monthly payment based on your income and family size with the intention of being affordable.

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Since monthly payments depend on your income, payments often become more affordable during lean financial times.

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Most income-driven repayment plans have 20- or 25-year terms. At that point, any remaining loan amount will be forgiven.

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In the past, the amount forgiven through an income-driven repayment plan could be treated as taxable income.

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But the U.S. Department of Education recently repealed this requirement for any loan amounts forgiven through 2025. Some experts believe it will become a permanent feature.

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Income-driven repayment may be a good idea for people with high loan balances and low incomes. As well as those who wish to avoid entering into adjournment or tolerance.

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It's also a smart strategy for borrowers who are struggling with their payments and don't want to refinance their student loans.

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If you're thinking about signing up for an income-driven repayment plan, consider that your main goal.

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