The burden of student loan repayments can often seem overwhelming and confusing, leaving borrowers unsure of the solutions available. However, amidst the maze of reimbursement options, there is one particular avenue that may seem too good to be true: $0 on income-driven reimbursement plans like IBR, PAYE, and REPAYE.
Today, we’re going to explore how these zero-dollar payments work, who qualifies for them, their pros, cons, and more.
Pay $0 per month on your student loans
The thought of getting a zero dollar bill from your student loan officer may raise some eyebrows, but it’s a real option thanks to income-driven repayment plans. These plans determine the payment amount based on what borrowers can afford to pay, rather than their outstanding loan balance. Although there are limits, a $0 payment can be a good choice for many borrowers.
How can I get a zero dollar payout?
For starters, it’s important to note that a $0 payment is only available for federal student loans; private loans are not eligible. Eligible borrowers must be on an income-based repayment plan, such as IBR, PAYE, or REPAYE. These plans require payments ranging from 10-15% of the borrower’s amount discretionary income. If the government calculation determines that a borrower has no discretionary income, their monthly payment will be $0.
Payments on income-tested reimbursement plans are recalculated each year, adjusted for inflation and changes in income.
Sherpa tip: This article treats all federal income-driven reimbursement plans the same, because eligibility for $0 payments and the pros and cons are all the same.
However, it should be noted that there are some important differences between these diets.
To start, if you qualify for a payment of $0 per month, REPAYE and its generous interest subsidy is often the best choice.
$0 Student Loan Payments vs. Forbearances and Deferrals
Eligibility for a $0 payment differs significantly from forbearance or deferral.
While forbearances and deferrals have time limits and typically don’t last a year, there are no such restrictions on zero-dollar payouts. Borrowers who make $0 payments on income-driven repayment plans can continue to do so year after year.
Additionally, payments of $0 can count towards student loan cancellation. Borrowers on income-driven plans can have their loans forgiven after 20-25 years, and those working in the public service can use their $0 payments to qualify for the 120 payments required for cancellation of utility loan.
Disadvantages to understand
Despite the advantage of not making monthly payments, it is essential to understand that interest on student loans does not disappear.
The loan balance increases with each passing month due to accrued interest. Borrowers should be aware of capitalized interestwhere the additional interest is added to the loan balance, resulting in interest being charged on the increased amount.
To avoid unnecessary capitalization of interest, borrowers should ensure that they do not miss any income certification deadlines.
Submit monthly payments of $0
When borrowers have $0 payments, there’s no need to send a check or fill out additional paperwork each month.
However, for loans with no payment required, borrowers should always remember to certify their income before the deadline imposed by the lender.
Are $0 payouts too good to be true?
Given the prevalence of student loan scams and unreliable information from loan officers, skepticism is natural when it comes to $0 payments on income-driven repayment plans like IBR, PAYE, and REPAYE .
Fortunately, one of the benefits of federal student loans is the availability of repayment plans based on borrowers’ income rather than their loan balance.
If the Department of Education determines that a borrower cannot afford monthly payments, they will owe $0 per month. Even unemployed borrowers may qualify for income-based repayment plans, with most eligible for $0 monthly payments. The Department of Education considers factors such as family size and location to determine affordability, calculating payments based on adjusted gross income (AGI) shown on tax returns.
IDR registration process
While not all borrowers can qualify for a $0 payment, anyone can apply for an income-driven repayment plan.
Frequently Asked Questions
No, $0 payments are only available for federal student loans.
No, interest continues to accrue and the loan balance increases each month. However, a newly proposed repayment plan may soon change this rule.
No, there is no need to send checks or set up automatic payments for $0 payments. However, borrowers should remember to certify their income before the annual deadline.
Yes, by applying for an income-driven repayment plan, borrowers can go from forbearance or deferral to $0 payments if eligible.
Understanding the $0 payments on income-tested repayment plans can help borrowers make informed decisions about managing their student loan debt.
Although the concept may sound too good to be true, it is a legitimate option for eligible borrowers with federal student loans. By taking advantage of income-driven repayment plans, borrowers can benefit from affordable payments, loan forgiveness opportunities, and a path to financial stability.