Income Based Repayment Plan

During the repayment period, it is likely that many will at some point face a decision to restructure their loans. This means that several borrowers will face the challenging decision of continuing with their current monthly payment plan and selecting an alternative plan that will fit into their monthly budget. Of the alternative repayment plans offered by the Department of Education; the income based plan has become one of the most applied for. This is largely due to the changes made for inclusion during the Obama administration.

How the IBR works

On the Income Based Repayment Plan (IBR), monthly payments are no longer a reflection of your outstanding loan balance. The benefit comes in being able to comfortably secure your monthly payment based on your households income and family size. Monthly payments are calculated as 15 of the students income. For newer borrowers (loans taken out after July 1, 2014), monthly payments will be 10 of the households discretionary income. For loans taken out before July 1, 2014 monthly payments will be 15 of household income. This plan guarantees an affordable repayment option while also supplying the possibility for loan relief at the end of the repayment term. Often an individuals economic position may qualify them for even a $0  monthly payment that still counts toward satisfying their term agreement.

These Types of Loans Will Qualify for IBR

-Direct Subsidized Loans

-Direct Unsubsidized Loans

-Direct Consolidated Loans Subsidized

-Direct Consolidated Loans Unsubsidized

-Direct Plus Loans

-FFEL Plus Loans (for graduate and professional students)

-FFEL Consolidation Loans without plus Loans that were made directly to parents

Depending on the types of loans that were taken out you may be able to immediately roll into and IBR, or you would need to consider a Direct Consolidation of you loans through the Department of Education to get the type of loans that qualify.

Interest Forgiveness

This forgiveness applies to borrowers who switch into the IBR and have a new monthly payment amount that will not cover the expected monthly payment to interest on the loan. If your monthly income based payment is smaller than the interest that your loan accrues monthly, you will be forgiven the interest amount for your first three years in repayment. This is known as an interest deduction benefit and applies to the subsidized Direct Consolidated Loans.

Forgiveness At The End Of The Repayment Term

The IBR program also offers relief of the loan balance after 20 years of satisfying the requirements of the plan for persons who took out their loans after July 1, 2014. This relief is also offered to those whose loans were taken out before July 1, 2014, but after 25 years instead. If there is a balance at the end of the term, and the borrower has satisfied the required 300 payments (even if those payments were $0), that balance will then be forgiven and discharged. This forgiveness is regarded as taxable income by the IRS and will be required during the following tax season.

Public Service Loan Forgiveness (PSLF)

This program was designed to benefit those who dedicate their services in the Public Sector after completing their education. Once a qualifying public servant has satisfied 120 qualifying monthly payments, they may apply to have the balance of their loans forgiven. This means, those working full time for the government, armed forces, or not-for-profit organizations that are 501 (c) (3) recognized by the IRS are eligible to make 120 consecutive, on time, full monthly payments to be forgiven their loan balance in full.

Annual Recertification Date

The IBR requires verification of the borrowers income each year. Every twelve month period on this plan you will have to submit documentation of your Annual Gross Income (AGI) for recalculation of your monthly payment amount. This will show any change in income and family size and sometimes offers an even lower monthly payment if these changes reflect such need.