Repay Your Loans with an Income Based Repayment Plan (IBR)
- 5 min read
- Learn what kind of loans can be included in an Income Based Repayment plan.
- Review how income eligibility is determined for an IBR plan.
- Examine how loans can be forgiven in an IBR, if you work in certain public service jobs.
An Income Based Repayment Plan (IBR) can Help You Lower Your Federal Student Loan Payments.
Student loan payments can cause great stress. The size of the monthly payments can be huge. Also, there are limited limited options for student loan relief.
Some consolidation options exist, but whether or not you can consolidate your loans and how you go about consolidating them depends on the type of loan loans you have. There are more student loan consolidation programs for federal student loan debt, including the ones announced by President Obama in late October, 2011, but far fewer options for private student loan consolidation.
Rising Cost of College Education
In 2012, the average debt load for college graduates was $29,400 per student. About 7 out of 10 seniors carry student loan debt. (Source: College Access & Success Project on Student Debt)
Consolidation Does Not Solve All Problems
Student loan consolidation is not a practical solution for everyone. Even if you qualify for a student loan consolidation, you can be left with a monthly payment that you can't afford. If you are looking to lower your payment for federal student loans, make sure to look into the Income Based Repayment plan (IBR). The IBR is a repayment plan for many types of federal student loans that caps the size of the monthly payment, based on the borrower's income and family size.
Loans You Can Include in an IBR plan
Old loans or new loans can be included in an IBR plan. It does not matter for what type of education you took out the loan, whether it was for undergraduate, graduate, professional, or job training, as long as the loans are:
- Stafford loans
- PLUS loans
- Consolidation Loans made under either the Direct Loan or Federal Family Education Loan (FFEL) Program
You cannot include the following loans in an IBR plan:
- Loans that are currently in default
- Parent PLUS Loans (PLUS Loans that were made your parents).
- Consolidation Loans that paid off a parent PLUS Loan.
IBR Income Eligibility
In order to be eligible for the IBR plan, you need to have a financial hardship. You have to show that you cannot afford to repay your loan(s) under the standard loan repayment terms. The key factors in determining both your eligibility for an IBR payment (and the size of your payment in the IBR plan) are your:
- Adjusted gross income
- The size of your family
- State of residence.
The Department of Education has a page Income Driven Plans, that includes information so you can see whether you should qualify for the IBR plan and also a Repayment Estimator to help estimate the size of your IBR monthly payment. It is handy to have your most recent tax return in front of you when using the IBR calculator, so you can use the actual adjusted gross income figure from your return. Of course, if your income level has changed, make sure to account for that. If you are married and file a joint federal tax return with your spouse, you need to include your spouse's income in your AGI calculation.
Student Debt is Huge
The total outstanding balance of student loans was $1.03 trillion as of September 2013. The 90-day or more delinquency rate at that date was 12%. By comparison, the delinquency rate was 6% in 2003. (Source: Federal Reserve Bank of New York)
If you do not qualify for the Income Based Repayment program, you may qualify for the Income Contingent Repayment program.
Pros of IBR
Repaying your loan through an IBR plan can benefit you in different ways:
- Lower Payment: If you qualify, your IBR monthly payment will be lower than in a standard 10-year repayment plan.
- Debt Cancellation: If you make your IBR payments as agreed, any unpaid balance that remains after 25 years is forgiven. (Editor’s Note: Under new rules proposed by President Obama in October, 2011, the debt for certain borrowers will be forgiven in 20 years, starting in 2012, instead of 2014.)
- Public Service Loan Cancellation: If you enter into certain public service jobs, keep the job for 10 years, and make all your IBR payments as agreed, your entire remaining loan balance will be forgiven. Qualifying jobs include working for a federal, state, local, or Tribal government organization; a public child or family service agency; military service; law enforcement;and public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals). The Department of Education provides a complete list of jobs that qualify for Public Service Loan Cancelation (PDF).
- Subsidized Interest Payment: If you have a subsidized Stafford Loan, the government will pay your unpaid accrued interest for up to three consecutive years from the time that you begin the IBR payment plan.
Cons of IBR
There are some potential negatives that come with an IBR plan that you should consider before you decide to apply:
- Higher Interest Costs: When you are paying less each month, it takes longer to pay off your loan. You can end up paying more in total interest costs over the duration of your loan.
- Yearly Document Requests: Your IBR payment amount is reviewed each you, in order to make sure that you are not making enough money to pay your loan outside the IBR program. You are required to provide your loan services with accurate, updated information about your income and your family size. If you don't furnish the required documentation, you will automatically be kicked out of the IBR and put into a standard 10-year repayment.
Applying for IBR
To apply for IBR, start by contacting the company or companies that service your loans. If you don’t know who services your loans, you can look up your lender. You may also find it useful to review a detailed set of questions and answers about the IBR plan (PDF) that the Dept. of Education provides.
Student loans are a hot topic today. As demonstrated by President Obama’s announcement, changes are set to happen. It is likely that other changes will take place, too. Use Bills.com as your resource, to keep informed about all your student loan options.
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2022 was $16.91 trillion. Student loan debt was $1.60 trillion and credit card debt was $0.99 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Each state has its rate of delinquency and share of debts in collections. For example, in New Hampshire credit card delinquency rate was 2%, and the median credit card debt was $471.
While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.