Income Based Repayment Plan (IBR) - Benefits of IBR
What is Income-Based Repayment?Many students graduate from college and pass through the grace period without getting a good paying job. Or perhaps you've had a job, been paying right along, but now you've been downsized and can't afford the payments you were making. Or maybe your family has grown, but your income hasn't kept up. The Income-Based Repayment can cap your monthly payments on certain federal loans depending on your income and family size.
Can all my loans be repaid under the IBR Plan?Loans that can not be placed in the IBR program are Parent PLUS loans, consolidation loans that included Parent PLUS Loans and any loans that are currently in default. Loans that can fall under the IBR Plan are Stafford Loans, Grad PLUS loans, consolidation loans under FFEL or Direct Loan that do not have a Parent PLUS loan included.
Am I eligible for IBR?Eligibility is based on income and family size. Your lender can calculate to determine if you are eligible, but you can also go to the Department of Education IBR Calculator to estimate your monthly payment under Income Based Repayment.
Advantages of IBR?There are several things that may be advantageous for one reason and dis-advantageous for others. Your monthly payment will be lower than it would be under the normal ten year payback period. However, over the long run, you will be paying for a longer period of time and the total amount of interest paid will be higher.
If your monthly payment under IBR doesn't cover the interest on the loan, the government will pay the interest due on any of your Subsidized Stafford Loans for up to three years. After that, the interest will get added back into the loan principal. Unpaid interest on any other types of loans will be recapitalized into your loan principal from the beginning of the Income-Based Repayment.
If you make payments for 25 years under IBR and meet certain other requirements, the remaining balance on you IBR loans may be cancelled
If you are paying under the Direct Loan Program, work in a public service job and are paying through IBR, your balance may be forgiven after 120 payments. FFEL loans are not eligible for the forgiveness, but you may consolidate them in the Direct Loan Program and become eligible. Payments made under FFEL don't count toward the 120 payment requirement. For more information on the Public Service Loan Forgiveness Program, visit the Department of Education Loan Forgiveness Plan Fact Sheet.
As mentioned earlier, you will end up paying more interest over the course of the IBR loan repayment. Another requirement is that you must present annual documentation about your income and family size. Failure to do so will force your loan to revert to the original 10 year repayment plan.