Income Based Repayment
Encyclopedia
There are a number of loan
repayment options available to U.S. federal student loan borrowers, including some that are based on the borrower’s income
. Income-Based Repayment (IBR) is a fairly new option that became available July 1, 2009
IBR bases payments on the borrower’s income and family size.
that builds up over the length of the payment period. After 25 years of repayment and 300 eligible payments, any outstanding balance will be forgiven. (It is possible to repay the loan in full before 25 years have passed.)
(NSLDS) at www.nslds.ed.gov can let a borrower know who is the servicer of his/her loan.
(ICR) plan these factors are considered, plus how much debt the borrower is actually carrying.
Loan clause is embedded within the IBR which states that a borrower who works in the public sector
can have any remaining balance forgiven after making payments for 10 years.
s may have their eligible student loan
s combined in determining repayment amounts.
) and the Federal Family Education Loan Program
. Most federal loans are eligible, but there are a few exceptions.
Eligible loans include:
Ineligible loans include:
IBR is available to all student loan borrowers with federal loans, but not those made to parents..
You must contact your lender directly to sign up.
You can find your lender by calling the National Student Loan Data System database at 1-800-4-FED-AID or TDD 1-800-730-8913, if you do not readily know this information.
Yes, as long as it is a federal loan, it is eligible under the IBR, regardless of when the loan was taken out.
No.
No.
The government will pay that interest on your Subsidized Stafford Loans during your first three years under the IBR plan. After three years, the interest will accrue but not compound, hence, added to your principal. Anything you still owe after 25 years of qualifying payments will be forgiven.
You can change repayment plans at any time. However, current regulations require that after leaving the IBR plan, you must go into a 10-year standard payment plan, and you can only return to IBR if you have a "partial financial hardship".
A partial financial hardship is when the 10-year standard monthly payment is more than 15% of discretionary income.
It is possible to pay more in the long run with IBR due to accumulated unpaid interest. However, the loan forgiveness provisions of IBR and Public Service Loan Forgiveness (PSLF) can end up saving a borrower money in the long run.
Your payments will rise as your income increases.
No, not as long as you make your monthly payments on time, and any debt forgiven under IBR or PSLF are not viewed as negative.
If your income changes substantially at any point let your lender know and ask to complete an Alternative Documentation of Income form.
Yes, but follow up to make sure the payment was properly applied.
Yes, as long as the loan is not in a default status.
Please go to www.studentloanborrowerassistance.org for more information on help when having difficulty paying back your federal student loans.
You can absolutely file your taxes separately in order to take advantage of IBR. However, you may lose certain tax benefits, such as, the Earned Income Tax Credit.
IThe IBR Information Organization cannot provide legal or financial advice to borrowers.
No, but you may want to consider consolidating anyway.
If all of your loans are in the William D. Ford Direct Loan program, then you will not need to consolidate. However, if any of your loans are in the Federal Family Education Loan (FFEL) guaranteed loan program, then you must consolidate these loans into the Direct Loan program for them to be eligible for forgiveness clause in the IBR.
If you have multiple federal loans, you can consolidate them into one loan. Since many Federal Family Education Loan (FFEL) lenders have stopped making federal consolidation loans, many borrowers are consolidating through the U.S. Department of Education’s Direct Loan Program.
No, however there are a few exceptions to this rule. If you have Federal Family Education Loans (FFEL) loans—where your lender is a private entity like Sallie Mae or Citibank—you can consolidate into the Direct Loan program to qualify for Public Service Loan Forgiveness, even if you have already consolidated your loans in the past.
Also, if you are consolidating to obtain either Income-Contingent Repayment (ICR) or Income-Based Repayment because your loan has been submitted to a guaranty agency for default repair, you can reconsolidate.
Yes.
You can receive loan forgiveness for any remaining debt, including interest, after 25 years of making monthly, qualifying payments.
To be eligible for Public Service Loan Forgiveness (PSLF) you must make 120 of the right kind of payments, with the right kind of loan, while working in the right kind of job. The 120 payments do not have to be consecutive.
According to the Department of Education’s, your job is eligible if you:
serve in a full-time AmeriCorps or Peace Corps position.
As long as you are working for a U.S. nonprofit organization or a U.S. government employer.
UAs of now, the Department of Education does not have a formal process to sign up for Public Service Loan Forgiveness, or for confirming eeligible employment.
No.
Yes, your new loans could also qualify for Public Service Loan Forgiveness, however, the 120 payment requirement would start over.
Yes, if you make Standard 10-Year repayments for 10 years, you won’t have any debt left to forgive.
ONLY the Standard 10-Year Repayment Plan is eligible for PSLF, regardless of what the “standard” repayment plan is for your debt level.
No, when you qualify for PSLF, you won't get slapped with a huge tax bill.
IBR and Public Service Loan Forgiveness were passed into law through the College Cost Reduction and Access Act of 2007, and any major changes to these programs would require new legislation to be passed by Congress and signed by the president. This is highly unlikely to occur in the foreseeable future.
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
repayment options available to U.S. federal student loan borrowers, including some that are based on the borrower’s income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
. Income-Based Repayment (IBR) is a fairly new option that became available July 1, 2009
IBR bases payments on the borrower’s income and family size.
What is the income-based repayment plan (IBR)?
The income based repayment (IBR) plan is one of several repayment plans that are offered via the William D. Ford Federal Loan Program or the Federal Family Education Loan Program.What are the important benefits of the IBR?
The government will pay the borrower's interest on subsidized loans for the first three years under repayment, if the IBR repayment amount does not cover it. If you repay your loans back correctly, under the IBR, and work in a qualifying occuation (e.g. teacher or advocacy law), the government will waive your remaining balance after ten years, otherwise, it is 25 years.Downsides to the IBR
Since a borrower is given a lower monthly payment to make, it will take longer to payback the loan(s), therefore, more interst is paid. Every year new documentation has to be filed in order to stay on the IRB plan that indicates family size and current earnings.Qualifying for the IBR
The IBR is a repayment plan that caps required monthly payment at an affordable rate based on income and family size. Monthly payments are not based on how much money a borrower owes, but rather on, how much the borrower earns. The borrower must display partial financial hardship to qualify for IBR. Hardship is determined by reviewing the borrower’s monthly payment amount of all eligible loans under standard repayment against his or her discretionary income. If the borrower qualifies, payments will be capped at no more than 15% of his or her discretionary income. The repayment amount could change annually, based on changes regarding the borrower's income and family size. There is no minimum payment amount with IBR. The borrower is still responsible for interestInterest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
that builds up over the length of the payment period. After 25 years of repayment and 300 eligible payments, any outstanding balance will be forgiven. (It is possible to repay the loan in full before 25 years have passed.)
How to determine eligibility
Utilizing the IBR calculator found at www.studentaid.ed.gov/ibr, a borrower can calculate his/her monthly payments, however, contacting your loan servicer can give a better determination of qualifying for the IBR. The National Student Loan Data SystemNational Student Loan Data System
The National Student Loan Data System is the U.S. Department of Education’s central database for federal student aid. NSLDS receives data from schools, guaranty agencies, the Direct Loan program, and other Department of ED programs...
(NSLDS) at www.nslds.ed.gov can let a borrower know who is the servicer of his/her loan.
Determing the IBR monthly payment amount
The monthly payment amount is based on the adjusted gross income amount and the family size. The borrower has to report his/her income and family size annually. The monthly payment amount can increase or decrease each year based on this information.The IBR vs. ICR (Income-Contingent Repayment) Plan
The major differences between these two plans, is that in order to qualify for the IBR, the borrower must show a financial hardship. Under the IBR plan, a borrower's income and family size is the only factors considered when setting-up a monthly payment plan. Under the Income-Contingent RepaymentIncome-Contingent Repayment
There are a number of loan repayment options available to U.S. federal student loan borrowers, including some that are based on the borrower’s income. Income-Contingent Repayment is available through the U.S...
(ICR) plan these factors are considered, plus how much debt the borrower is actually carrying.
Public service loan clause
A Public ServicePublic services
Public services is a term usually used to mean services provided by government to its citizens, either directly or by financing private provision of services. The term is associated with a social consensus that certain services should be available to all, regardless of income...
Loan clause is embedded within the IBR which states that a borrower who works in the public sector
Public sector
The public sector, sometimes referred to as the state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal.Examples of public sector activity range...
can have any remaining balance forgiven after making payments for 10 years.
July 1, 2010 Changes
As of July 1, 2010, the loan amount used to determine partial financial hardship is either the greater of the loan amount at the time the borrower initially entered repayment or the loan amount at the time the borrower elected to repay under IBR. Also as of July 1, 2010, married borrowers who file joint tax returnTax return
A tax return is a tax form that can be filed with a government body to declare liability for taxation in various countries:* Tax return * Tax return * Tax return * Tax return...
s may have their eligible student loan
Student loan
A student loan is designed to help students pay for university tuition, books, and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in education...
s combined in determining repayment amounts.
Changing a Repayment Plan
To apply for IBR, the borrower needs to provide information about family size, income, and taxes, and fill out IRS Tax Form 4506-T, along with an Income-Based Repayment Plan Application.IBR-Eligible Loans
IBR is available to borrowers in the William D. Ford Direct Loan Program (e.g. Federal Direct Student Loan ProgramFederal Direct Student Loan Program
The William D. Ford Federal Direct Loan Program provides "low-interest loans for students and parents to help pay for the cost of a student's education after high school. The lender is the U.S. Department of Education .....
) and the Federal Family Education Loan Program
Federal Family Education Loan Program
The Federal Family Education Loan Program was the second largest of the U.S. higher education loan programs . The FFEL was initiated by the Higher Education Act of 1965 and was funded through a public/private partnership administered at the state and local level...
. Most federal loans are eligible, but there are a few exceptions.
Eligible loans include:
- Subsidized and unsubsidized Stafford loanStafford loanA Stafford Loan is a student loan offered to eligible students enrolled in accredited American institutions of higher education to help finance their education...
s - SLS loans
- Grad PLUS loans
- Consolidation loans without underlying Parent PLUS loans (Perkins loans may be included).
Ineligible loans include:
- Parent PLUS loans
- A Consolidation loans with underlying Parent PLUS loanPLUS loanA PLUS Loan is a student loan offered to parents of students enrolled at least half time in eligible programs at participating and eligible post-secondary institutions or graduate and professional students at participating and eligible postsecondary institutions.-Similarities with Stafford and...
- Perkins loans, unless they are included in a Consolidation loan
- Private, state, and other non-federal student loans
- Loans in default
Frequently Asked Questions
- Who can use Income-Based Repayment (IBR)?
IBR is available to all student loan borrowers with federal loans, but not those made to parents..
- How do I apply for IBR?
You must contact your lender directly to sign up.
- Who is my lender?
You can find your lender by calling the National Student Loan Data System database at 1-800-4-FED-AID or TDD 1-800-730-8913, if you do not readily know this information.
- Can I use IBR to pay off older federal loans?
Yes, as long as it is a federal loan, it is eligible under the IBR, regardless of when the loan was taken out.
- Can I use IBR to pay off private, non-federal loans?
No.
- Can I use IBR if I am in default on my federal loans?
No.
- How does IBR treat interest? Does it still accrue?
The government will pay that interest on your Subsidized Stafford Loans during your first three years under the IBR plan. After three years, the interest will accrue but not compound, hence, added to your principal. Anything you still owe after 25 years of qualifying payments will be forgiven.
- What if I choose IBR and later decide to switch to a different plan?
You can change repayment plans at any time. However, current regulations require that after leaving the IBR plan, you must go into a 10-year standard payment plan, and you can only return to IBR if you have a "partial financial hardship".
- What is a "partial financial hardship"?
A partial financial hardship is when the 10-year standard monthly payment is more than 15% of discretionary income.
- What’s the difference between Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR)?
- ICR was inacted in 1994. IBR started in 2009.
- ICR is solely for Direct Loans. IBR is available for both Direct and FFEL loans.
- ICR and IBR use different guidelines to determine the amount of an individual's monthly payment.
- You do not need a partial financial hardship to be eligible for ICR.
- The IBR will have lower monthly payments over the ICR.
- Note: Use both the IBR and ICR payment calculator to configure which monthly payment is lower.
- Are there any down-sides to IBR?
It is possible to pay more in the long run with IBR due to accumulated unpaid interest. However, the loan forgiveness provisions of IBR and Public Service Loan Forgiveness (PSLF) can end up saving a borrower money in the long run.
- What happens when my income increases while I am in IBR?
Your payments will rise as your income increases.
- Will IBR hurt my credit rating?
No, not as long as you make your monthly payments on time, and any debt forgiven under IBR or PSLF are not viewed as negative.
- My lender is asking for last year's Adjusted Gross Income (AGI), which is no longer accurate. Is there anything I can do? What if I did not file a tax return?
If your income changes substantially at any point let your lender know and ask to complete an Alternative Documentation of Income form.
- If I sign up for IBR, can I occasionally send in extra money to pay down the principal of my loan?
Yes, but follow up to make sure the payment was properly applied.
- My loan has been sold or reassigned. Is it still a federal loan? Can I still participate in IBR?
Yes, as long as the loan is not in a default status.
- I’m not eligible for IBR or ICR, but am having difficulty paying my federal student loans. Is there help for me?
Please go to www.studentloanborrowerassistance.org for more information on help when having difficulty paying back your federal student loans.
- The calculator indicates that I am not eligible for IBR when I include my spouse’s income, but might be if I file my taxes separately from my spouse. What should I do?
You can absolutely file your taxes separately in order to take advantage of IBR. However, you may lose certain tax benefits, such as, the Earned Income Tax Credit.
- Can someone at IBRinfo.org help me with my personal student loan situation?
IThe IBR Information Organization cannot provide legal or financial advice to borrowers.
- If I have multiple unconsolidated loans, will I have to consolidate them to qualify for IBR?
No, but you may want to consider consolidating anyway.
- If I have multiple unconsolidated loans, will I have to consolidate them to qualify for Public Service Loan Forgiveness (PSLF)?
If all of your loans are in the William D. Ford Direct Loan program, then you will not need to consolidate. However, if any of your loans are in the Federal Family Education Loan (FFEL) guaranteed loan program, then you must consolidate these loans into the Direct Loan program for them to be eligible for forgiveness clause in the IBR.
- How do I consolidate my loans?
If you have multiple federal loans, you can consolidate them into one loan. Since many Federal Family Education Loan (FFEL) lenders have stopped making federal consolidation loans, many borrowers are consolidating through the U.S. Department of Education’s Direct Loan Program.
- Can I reconsolidate my loans if I’ve consolidated them in the past?
No, however there are a few exceptions to this rule. If you have Federal Family Education Loans (FFEL) loans—where your lender is a private entity like Sallie Mae or Citibank—you can consolidate into the Direct Loan program to qualify for Public Service Loan Forgiveness, even if you have already consolidated your loans in the past.
Also, if you are consolidating to obtain either Income-Contingent Repayment (ICR) or Income-Based Repayment because your loan has been submitted to a guaranty agency for default repair, you can reconsolidate.
- My spouse and I jointly consolidated our debt when that was an option. Are we eligible for IBR?
Yes.
- How does loan forgiveness work with IBR?
You can receive loan forgiveness for any remaining debt, including interest, after 25 years of making monthly, qualifying payments.
- How does Public Service Loan Forgiveness (PSLF) work?
To be eligible for Public Service Loan Forgiveness (PSLF) you must make 120 of the right kind of payments, with the right kind of loan, while working in the right kind of job. The 120 payments do not have to be consecutive.
- Where can I find more information about PSLF job eligibility?
According to the Department of Education’s, your job is eligible if you:
-
- are employed by any nonprofit
- are employed by the federal government, a state government, local government, or tribal government (this includes employment by the military, public schools and colleges, public health centers, etc.); or
serve in a full-time AmeriCorps or Peace Corps position.
- Can I qualify for Public Service Loan Forgiveness if I work overseas?
As long as you are working for a U.S. nonprofit organization or a U.S. government employer.
- I think I qualify for Public Service Loan Forgiveness, but how can I be sure? Is there a way to register for the program?
UAs of now, the Department of Education does not have a formal process to sign up for Public Service Loan Forgiveness, or for confirming eeligible employment.
- Do income-sensitive, graduated, or extended loan payments count towards PSLF?
No.
- I am making PSLF-eligible payments on my undergraduate loans. If I take out more loans to go back to school, will those loans also qualify for PSLF?
Yes, your new loans could also qualify for Public Service Loan Forgiveness, however, the 120 payment requirement would start over.
- The “Standard 10-Year Repayment Plan” is one of the eligible repayment plans for receiving Public Service Loan Forgiveness. But if I make 120 payments (10 years) in that plan, won’t I have paid off all of my debt?
Yes, if you make Standard 10-Year repayments for 10 years, you won’t have any debt left to forgive.
- For my amount of debt, I was told that the “standard plan” is longer than 10 years. Would these lower “standard” payments count towards PSLF?
ONLY the Standard 10-Year Repayment Plan is eligible for PSLF, regardless of what the “standard” repayment plan is for your debt level.
- Will forgiven loan amounts be taxed as income?
No, when you qualify for PSLF, you won't get slapped with a huge tax bill.
- Will IBR and Public Service Loan Forgiveness remain available in the future, or could these programs be somehow taken away?
IBR and Public Service Loan Forgiveness were passed into law through the College Cost Reduction and Access Act of 2007, and any major changes to these programs would require new legislation to be passed by Congress and signed by the president. This is highly unlikely to occur in the foreseeable future.