Don’t make expensive mistakes when repaying student loans. There are 4 main income based repayment programs for federal loans.
1- Deferment. While your loan is in deferment you don’t make any payments; if your loan is subsidized you won’t accrue interest during deferment. Interest not paid during deferment is capitalized (added to the balance and interest is charged on interest).
2- Forbearance. If you don’t qualify for a deferment you might be eligible for forbearance; this lets you make payments or reduced payments for up to a year. Interest will accrue and unpaid interest will be capitalized.
3- I.B.R. – Income Based Repayment. If you qualify for this program the maximum monthly payment is 15% of discretionary income, using a specific formula; balances can be forgiven after 10, 20 or 25 years.
4- I.C.R. – Income Contingent Repayment. Your monthly payments are pegged to income, family size and your balance; after 25 years the remaining balance is forgiven.
Research these programs and check out the government’s student loan website.
