Alternative Repayment Plan – The Little Known Federal Student Loan Plan When All Else Fails

For individuals struggling to repay their federal student loans and think the only repayment options are a Graduated Repayment Plan, Extended Repayment Plan, Revised Pay As You Earn, REPAYE, Pay As You Earn, PAYE, Income Based Repayment Plan, IBR, Income Contingent Repayment Plan, ICR, or Income Sensitive Repayment Plan.

For Direct Loans there is also an Alternative Repayment Plan.

Here is the inside Department of Education information on that plan.

A borrower can request to be placed on an Alternative Repayment Plan when the terms and conditions of other repayment plans are not adequate to accommodate his or her circumstances.

The Servicer requires the borrower to provide evidence of the exceptional circumstance. Currently, alternative repayment options may be customized to fit the borrower’s needs within the following restrictions:

  • The maximum term is 30 years (including time already spent in repayment, other than periods of deferment or forbearance),
  • Payments cannot vary by more than three times the smallest payment, and
  • The minimum payment is $5.

Alt Payment Term

This plan allows a borrower to repay his or her loan(s) in a fixed number of years not otherwise available under one of the existing plans. The Servicer can specify a repayment term of any length to the borrower, as long as the borrower’s repayment term does not exceed 30 years, including time already spent in repayment. A minimum payment of $5 is required, but any payment amount that amortizes over the selected term is acceptable. This plan precludes negative amortization (where the borrower pays below monthly-accrued interest).

Alt Payment Amount

This plan precludes negative amortization (where the borrower pays below monthly-accrued interest). The borrower can specify any fixed payment amount desired as long as:

  • The payment is at least $5, and
  • The borrower’s loan(s) is paid off in 30 years.

The borrower continues to pay the fixed amount, unless the payment amount is adjusted to avoid negative amortization or to ensure that the loan will be completely paid off within 30 years. This adjustment could occur after the annual interest rate change.

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Alt Graduated

This plan provides a more flexible version of the Graduated Repayment Plan.

A borrower’s payments start out at one level, then the payments increase every 2 years. The borrower and Servicer work together to determine the repayment term over which the loan is graduated, but the repayment term is at least 3 years and not more than 30 years (including time already spent in repayment).

The minimum or first payment amount is the greater of:

  • Five dollars, or
  • The monthly accrued interest, or
  • Fifty percent of what the payment would be if the borrower were paying a level payment over the repayment term.

Negative amortization is not permitted. The final graduation step payment cannot be more than 150 percent of what the payment would be if the borrower were paying a level payment over the term.

Alt Neg Am

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This plan is only used when a borrower is not eligible for the ICR plan, or if the ICR plan is not sensitive enough to the borrower’s immediate extenuating circumstances, but the fixed payment amount requested is less than the interest accrued monthly on the borrower’s loans.

The Servicer can designate any initial payment amount requested by the borrower as long as the payment is at least $5.

The Servicer can only maintain a borrower on negative amortization for a maximum of 1 year. After 1 year of negative amortization, the Servicer increases the borrower’s payments so that the borrower’s loan(s) positively amortizes.

The borrower may select the length of the positively amortizing period as long as the total repayment period does not exceed 30 years.

The interest that accrues and is unpaid during the negative amortizing period of this plan is subject to the same capitalization limitation that is currently applicable to negative amortization periods while on the ICR plan. – Source

What This Means

This is not going to be a miracle repayment plan but at least it may help those people who are stuck in a situation where no other plan works at the moment. At the very least, it is an option the Department of Education and loan servicers never promote as an option when everything else fails.

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At the very least the Alternative Repayment Plan can be used to buy some time. According to the inside information, “A borrower can change from any plan to the Standard, Extended, Graduated, or Alternative Repayment plans as long as the new plan has a repayment term greater than the amount of time that the borrower has already been in repayment. The borrower’s new repayment term is calculated by subtracting the amount of time the borrower has already been in repayment from the term of the new plan. Periods of authorized deferment and forbearance also do not count toward the repayment term.”

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