Steps
- Learn that the US Department of Education offers a consolidation loan that can be paid back through an Income Contingent Repayment(ICR) plan. Learn some of the pros and cons:
- The wonderful side of the ICR plan is that those who have run into some bad luck and just aren?t making enough to make their normal payments can apply for a consolidation loan EVEN IF they are currently in default status on your Federally guaranteed student loans.
- An ICR is a repayment plan that bases your monthly payment on your yearly income, family size, and loan amount. As your income rises or falls, so do your payments. After 25 years, any remaining balance on the loan will be forgiven, but you may have to pay taxes on the amount forgiven.
- Each year your monthly payment will be based on your family size, annual Adjusted Gross Income (AGI) as reported on your federal tax return, and the total amount of your Direct Loan(s). To participate in the ICR Plan you must authorize the U.S. Internal Revenue Service (IRS) to inform the U.S. Department of Education (Department) of the amount of your income. This information will be used to calculate your repayment amount, which will be adjusted annually to reflect changes in your AGI.
Tips
- Don't believe the private lenders when they tell you you can't get a consolidation. If you don't mention the Income Contingent Repayment Plan they won't offer it as an option.
- Just as a note the Dept of Education is a bit slow so don't expect this overnight.
Warnings
- The BIG danger / risk / problem with an ICR plan consolidation is that in 25 years when the balance of the loan in forgiven it may be considered income to you then. There is some movement to remove this possibility from the law and there are currently ways to soften the blow but it is a considerable issue you need to consider.
Sources and Citations
- http://loanconsolidation.ed.gov/borrower/borrower.shtml - US Department of Education Website
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