Student loan debt in the United States has more than tripled since 2006, according to the Federal Reserve Bank of Saint-Louis, and in the first quarter of 2021, Americans currently owe $ 1.729 billion in student loans.

For some student loan holders, paying off this debt is a huge burden. In 2019, 17% of adults with outstanding student loan balances were in arrears with their payments, according to the Federal Reserve.

While the cancellation of large-scale student loans has not been completed, some borrowers may get relief by signing up for income-oriented repayment plans.

Refinancing student loans is also an alternative option for borrowers who wish to save money but do not qualify for such plans. If you want to refinance your private student loans, use a tool like Credible to compare student loan refinancing rates from multiple lenders at once without affecting your credit.

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What is an income-based repayment plan?

An income-based repayment plan is a student loan repayment plan that bases your monthly payments on your income and your family size. Since it is based on these factors, it could be cheaper than the standard 10 year repayment plan.

Only federal student loan borrowers who meet certain conditions are eligible to enroll in income-based repayment plans. Unfortunately, there is no similar option for private student loans.

However, one way to manage private student loan debt is to consider refinancing your loan. Use an online student loan refinance calculator to get a feel for what your new monthly payments might be.

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Can an income-based repayment plan help get my student loans canceled?

When you sign up for an income-based repayment plan, it is possible to get your student loan balance canceled. The time it takes for your remaining loan to be canceled depends on the income-based payment program you sign up for.

Here are the four income-based payment options for federal student loans and their terms:

1. Income-Based Repayment Plan (ICR) – 25 years
2. Pay As You Earn (PAYE) reimbursement plan – 20 years
3. Income Based Repayment Plan (IBR) – 20 to 25 years (borrowed before July 1, 2014)
4. Repayment plan revised as you earn (REPAYE) – 20 to 25 years old (higher education)

With each plan, a percentage of your discretionary income is allocated to your student loans. The PAYE and REPAYE programs require you to pay 10% of your discretionary income. The IBR plan requires you to pay 10% of your discretionary income; 15% if you took out your student loan before July 1, 2014. The REFUND requires you to pay 20% of your discretionary income.

After you complete each program, your loan balance will be canceled after 20 to 25 years. However, if you sign up for an income-based repayment plan and qualify for the public service loan forgiveness program, your loans could be canceled after 10 years or 120 “eligible” payments.

Pros and Cons of Income Based Repayment Plans

Before signing up for an income-based repayment plan, you should consider its pros and cons.

Benefits

The benefits of repayment plans include:

1. Lower monthly payments
2. Reduced loan amount

1. Lower monthly payments. Since your monthly payments are based on your discretionary income, they could be more affordable. For example, if you retire on student loans, it may be easier for you to pay everyday expenses in addition to your student loan payments.

2. Reduced loan amount. Forgiving a portion of your student loan balance reduces the total amount you repay, freeing up money to spend on other financial goals.

The inconvenients

The disadvantages include:

1. Stay in debt longer
2. Taxes on amount remitted

1. Stay in debt longer. If your goal is to get out of debt, using a repayment plan will keep you in debt longer.

2. Taxes on the amount remitted. The canceled student debt could be imposed if the current law changes.

If you don’t qualify for an income-based repayment plan and have private student loans, you might consider student loan refinancing. Use an online tool like Credible to view a rate table that compares the rates of multiple student lenders at once.

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The bottom line

If your federal student loan payments are too high, an income-based repayment plan can make them more affordable. After making payments for 10 to 25 years, your student loan balance may be forgiven. The time it takes for your loans to be canceled will depend on the type of income-oriented plan you sign up for.

Before signing up for this plan, however, consider its pros and cons. One downside is that this debt can affect you for decades. If your goal is to get off debt fast, this might not be the best plan for you.

This option is not available to you if you have private student loans. If this is the case for you, you might consider refinancing to save money instead. Use a tool like Credible to get prequalified student loan refinance rates without affecting your credit score.

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