The Department of Education also offers several forms of income – based repayment plans for federal student loans
These include the Pay as You Earn Repayment Plan, the Revised Pay as You Earn Repayment Plan, the Income – Based Repayment Plan, and the Income – Contingent Repayment Plan. 45 Under the Education Department repayment plans, the student’s payment obligation will cease if the principal loan balance is repaid before the end of the repayment period. Borrowers and their advisers should be diligent in reviewing the plan details, as each Education Department plan has specific requirements and features.
Under the Education Department plans, any remaining student loan balance is forgiven if the loans are not fully repaid at the end of the designated repayment period
Because income – driven repayment plans often lower the monthly payment and extend the repayment period, the student will likely end up paying more in interest over time.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, 46 enacted in , expands the benefits of Sec. 529 college savings plans by allowing families to take tax – free distributions for purposes of student loan repayment. Principal and interest payments toward a qualified student loan will be considered a qualified 529 expense. The portion of the interest paid with tax – free Sec. 529 earnings is not eligible for the student loan interest deduction.
47 If the $10,000 limit is exceeded, the earnings portion of the excess distribution is included in the individual’s income and subject to the 10% penalty. The limit on student loan distributions applies to an individual from all 529 plans; it cannot be avoided by receiving distributions from more than one account. A distribution to a sibling of the designated plan beneficiary is applied to the sibling’s $10,000 lifetime limit, not the beneficiary’s. 48
The law has an aggregate lifetime limit of $10,000 in student loan repayments per 529 plan beneficiary and $10,000 per each of the beneficiary’s siblings
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