Income-Based Student Loan Repayment Plans (IBR)
There is a ton of focus on getting into and paying for college. However, after those four (hopefully!) years, young adults must often face the task of not only finding employment but also repaying college student loans. There are many different ways to tackle student loan repayment. Let’s take a look at one option available: Income-Based Repayment Plans.
Income-Based Repayment Plans
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What are Income-Based Repayment Plans?
Income-Based Repayment (IBR) is one of the four main types of income-driven repayment plans offered by the U.S. Department of Education for federal student loans. IBR is designed to help borrowers manage their student loan debt by adjusting their monthly payments based on their income and family size.
Details of Income-Based Repayment Plans
Under the IBR plan, borrowers' monthly payments are capped at 10% or 15% of their discretionary income, depending on when they first borrowed. Discretionary income is calculated as the difference between the borrower's adjusted gross income and 150% of the poverty guideline for their family size and state of residence.
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Student Loan Forgiveness Opportunity
After 20 or 25 years of payments, depending on when the borrower first borrowed, any remaining balance is forgiven. However, the forgiven amount may be taxable as income.
How to Qualify for Income-Based Repayment Plans
To be eligible for IBR, borrowers must have eligible federal student loans and demonstrate a partial financial hardship. This means that the borrower's monthly payments under the IBR plan must be lower than what they would pay under the standard 10-year repayment plan. Borrowers must also recertify their income and family size annually to ensure that their monthly payments are adjusted accordingly.
Know the Downside
It is important to note that while IBR can make monthly payments more manageable, it can also result in paying more in interest over the life of the loan compared to other repayment plans. Borrowers should carefully consider their options and consult with their loan servicer or a financial advisor before selecting a repayment plan.
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There is a lot to be gained from our free general financial aid advice, but it’s also a very individual process. If you have remaining financial aid questions, email us to discuss more or book an individual session.