Income-Based Repayment - What You Should Know

Income-Based Repayment (IBR) is the most widely available income-driven repayment (IDR) plan for federal student loans that has been available since 2009. IBR was first made available to federal student loan borrowers with either Direct or FFEL loans, and covers most types of federal loans made to students. To qualify for IBR, you have to have enough debt relative to your income to qualify for a reduced payment. That means it would take more than 15% of whatever you earn above 150% of poverty level to pay off your loans on a standard 10-year payment plan.

Now that you know the history - let’s get to the benefits. Income based repayment is great for some students because it offers flexibility during times of financial instability. Think, unemployment, looking for a new job, or while having a low paying early career job, or perhaps several jobs. It’s also offered at no cost to borrowers. The government does not charge anything to borrowers for applying and neither do we at A.M. Money. Check out our blog on how to avoid scams that charge students for this free service, here.

Some of the long term drawbacks of Income-driven repayment plans is having to deal with taxable income on forgiven loans in the future. You might also be paying more in interest over time. Be clear about your goals and choose the right repayment plan for you.

There are 4 types of income driven repayment plans available to all federal student loan borrowers – note that this is different from private student loan borrowers. The 4 payment programs are: Revised Pay As You Earn (REPAYE), Pay As You Earn (PAYE), Income – Based Repayment (IBR), and Income – Contingent Repayment (ICR).

Using the graph below figure out which plan you qualify for in terms of income and family size. To determine whether you qualify compare your your household income with the federal poverty guideline. If you do qualify, estimate your payments using student loan heroes online calculator.

Martha Rodriguez