Question

LUCA makes $58,000 per year, is single, and lives in Seattle, WA. He has $27,000 in Direct Unsubsidized federal loans, but hes got another $62,000 in private student loans and lives in an expensive neighborhood, so his rent is high. Hes hoping to keep his Federal student loan payments to less than $200 per month for the first few years so that his budget will work out. Which plan meets Lucas desire for Federal loan payments under $200 for the first few years?

Answer 1

LUCA should choose the Revised Pay As You Earn (REPAYE) repayment plan.

Comparing Federal Student Loan Repayment Plans for LUCA:

Income-Based Repayment (IBR):

Seattle Poverty Guideline for Singles (2023): $20,472

Minimum Discretionary Income: 150% * $20,472 = $30,708

LUCA's Discretionary Income: $58,000 - $30,708 = $27,292

Estimated Monthly Payment: 10% * $27,292

= $2,729.20

Income-Contingent Repayment (ICR):

Monthly Payment: 20% of LUCA's discretionary income

Estimated Monthly Payment: 20% * $27,292

= $5,458.40

Revised Pay As You Earn (REPAYE): Monthly Payment: 10% of LUCA's discretionary income, capped at the amount he would pay under the 20-year Standard Repayment Plan

Standard Repayment Plan for $27,000 loan: $185.49 per month

LUCA should choose the Revised Pay As You Earn (REPAYE) repayment plan. This plan offers the lowest monthly payment while still making progress towards loan forgiveness.