How Is Your Loan Payoff Date Affected When You Switch Your Repayment Plan

Understand how your Payoff date will be affected when you switch your income-based repayment plans and learn more about the Temporary Expanded Loan Forgiveness program.

Updated by Vidish S on 20th February 2020

What if you switched your Income-Based Repayment plan from one program to another and got a new payoff estimate that is not what you expected it to be. It might just so be the case that your lender has not taken into account your payments made in your previous repayment plan.

This raises the question of how your payoff date will be estimated. Let’s dive a little deeper to find out more.

Table of contents

Ascertaining Your Loan Payoff Date

Determining the loan payoff date is pretty simple for some repayment plans, such as the 10-year repayment plan, where your loans will be paid off in 10 years. Similarly, an extended repayment plan means your loans will be paid off in a total of 25 years. All these are estimates assuming you make only the minimum monthly payment as per your plan.

For REPAYE, PAYE and other Income-driven plans, the calculation of the payoff date become much more difficult. This is due to the fact that income-driven plans have monthly charges based on the income of the borrower and not what the borrower owes. If a borrower loses their job, they would not have to make any monthly payments until another job is found, but this period of $0 payments or lower amount payments will affect the loan balance as it may actually grow larger due to the accumulation of interest.

Change of income is quite common in a job, a promotion, bonus or otherwise, and this would also change the amount that must be repaid, which will, in turn, affect the amount of time it will take to pay off your loan in an income-driven repayment plan.

But, as income-driven repayment plans are covered under student loan forgiveness provisions, determining the maximum amount of time on the repayment plan is possible. Different income-driven repayment plans will trigger forgiveness either after 20 years or 25 years. For an income-driven repayment plan, the earliest possible student loan forgiveness date is considered more accurate and appropriate.

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Temporary Expanded Loan Forgiveness 

One important thing to remember is that the time spent on the extended repayment plan and the graduated repayment plan will not count towards student loan forgiveness. This essentially means that if a borrower starts their REPAYE monthly repayments next month, then the forgiveness clock will start next month and not when the loan was first borrowed. There is one exception to this rule though, and that is the PSLF program. Congress has passed a law that temporarily expands PSLF for borrowers who were enrolled in a repayment plan for which they were not eligible. Plans that are included under this law are the Extended Repayment Plan, the Graduated Repayment Plan, and the Graduated Extended Repayment Plan. However, one massive downside to this program is that it is limited and is awarded on a first-come-first-serve basis. The website of the Department of Education has more info about the temporarily expanded loan forgiveness. 

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Some Final Thoughts

For income-based repayment plans, the real question to be asked is not when the loans will be repaid, rather, how they will be repaid. Depending from borrower to borrower, the priorities may differ. For some, it may be important to pay off their student loans as quickly as possible, while for others, the primary objective may be to save up for a house and then tackle their student loans. No matter what your priorities may be, while evaluating your repayment options and strategy, it is critical to figure out how the student loan repayments will match up with your future plans. Check your finances and decide which income-based repayment best suits your needs and keep a check on how the payments are being made, not the duration of repayment.