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Student Loans

Income-Based Student Loans

With most private student loans, monthly payments are determined without considering the borrower’s earnings. So a borrower making $100,000 a year could have the same monthly payment as someone making half as much.

Income-based private student loans mean borrowers have a new option that offers much more flexibility. Read on to find out how income-based student loans work and how they compare to traditional private loans.

What are income-based student loans?

Income-based private loans calculate the monthly payment as a percentage of the borrower’s income. This can make repayment easier for borrowers because payments will scale up or down based on their income.

As of April 2024, Edly is the only private lender we found that offers income-based repayment (IBR) plans. If you qualify for an income-based loan with Edly, payments start four months after graduation, as long as the borrower is earning at least $30,000. 

  • No payment required if your annual salary is less than $30,000
  • Built-in protections, including deferred payment due to job loss
  • Cosigners & in-school payments not required

Payments end when the borrower has made 84 monthly payments, paid back 2.25 times the loan amount, or hit a 23% APR cap.

Income-based private loans vs. federal loans

Federal student loans also come with income-driven repayment (IDR) options, with terms of 20 or 25 years, depending on the loan type. The main difference with a federal IDR plan is that the remaining loan balance is forgiven after the term is completed, or sooner if you work for a nonprofit or government organization and qualify for Public Service Loan Forgiveness.

Borrowers with federal loans don’t choose a repayment option until they start making payments. They can also change their payment plan at any time. 

With a private income-based loan such as Edly’s, borrowers agree when they sign the initial loan contract to make payments based on their income level. If they want to repay the loan with a lump sum, they must agree to a fixed—often high—interest rate.

Income-based private loans vs. traditional private loans

Edly’s income-based loan option is a private loan, but it differs from a traditional private loan.

Borrower requirements

Edly doesn’t require a minimum credit score or a cosigner. However, an adverse credit history—such as collections or defaults—may affect your eligibility.

You can see whether you qualify for an Edly loan by filling out a short prequalification form. You’ll input your school, major, degree, GPA, expected graduation year, desired loan amount, and current year in school. 

Loan limits

Edly’s loan limits depend on several different factors, with a $5,000 minimum and a $25,000 lifetime maximum. The most borrowers can qualify for in a single academic year is $15,000, plus $10,000 for a summer session. 

Many private lenders let borrowers take out the annual cost of attendance, which can be much higher.

Repayment terms

Many traditional private student loans offer a six-month grace period after graduation before repayment begins. But students who become unemployed have to apply for deferment, and the eligibility requirements vary depending on the lender.

Here’s how an Edly income-based loan works:

  • Deferment is automatic for unemployed borrowers or those earning below $30,000. Once a borrower’s annual income reaches at least $30,000, payments kick in.
  • Edly’s repayment maximum is whichever the borrower reaches first: 2.25 times the amount borrowed, 23% APR, or 84 payments (payments deferred while a borrower is under the income threshold do not count).
  • Your monthly payment amount is based on the time set in your loan terms and conditions, even if it’s a higher percentage of your income than your fixed income percentage rate. Similar to other lenders, Edly charges a late fee of $25 or 6% of the late payment, whichever is lower.

Traditional private lenders calculate payments based on the initial borrowed amount plus a fixed or variable APR.

How Edly’s income-based repayment works

The amount you earn after graduation has a huge impact on how much you pay each month and over the life of the loan.

If you sign up for an income-based repayment option through Edly, your payment will depend on your income. Edly borrowers must earn at least $30,000 a year for payments to begin. 

If you plan to enter a high-earning field, an Edly loan may not be the wisest choice because you’ll end up handing over a much larger portion of your income. Edly verifies borrower income annually through tax returns.

Other borrowing options for income-based repayment

If you’re not sure an Edly student loan is right for you, here are two income-based alternatives.

Federal student loans

As we mentioned, federal student loans offer a variety of income-driven repayment plans.

Income-share agreement

If you’re seeking a private student loan, an income-share agreement (ISA) is similar to an income-based student loan. Monthly payments are based on your current income, and the term is decided when you sign the agreement. Most ISAs last between two and 10 years. 

During that time, you pay a portion of your salary every month. The downside of an ISA is that if you’re a higher earner, you may wind up paying much more than you borrowed.

You might find income-share agreements through your college or with a third-party company. Not every student will qualify for an income-share agreement. They’re most often given to students in STEM fields, so liberal arts majors will have a harder time qualifying for an ISA.