Income-Based Repayment (IBR) Plan for Federal Student Loans

Are you looking for an income-driven repayment plan for your federal student loans? If so, the Income-Based Repayment (IBR) plan could be a good option for you. In addition to lower monthly payments, it also opens the door to potential student loan forgiveness.

Below we answer all of the most common questions about Income-Based Repayment so that you can make a more informed decision about whether or not it is right for you.

What is the Income-Based Repayment (IBR) Plan?

The Income-Based Repayment (IBR) plan caps your monthly payments at either 10 percent or 15 percent of your discretionary income, depending on when you borrowed your loans. You will make payments for a total of 20 or 25 years (again depending on when you borrowed your loans). After this time has passed, any remaining balance may be forgiven.

What types of loans are eligible for the Income-Based Repayment (IBR) Plan?

The following types of student loans are eligible for Income-Based Repayment:

Direct Consolidation Loans that include loans made to parents are not eligible for repayment under this plan.

How long will repayment last?

If you borrowed your first loan on or after July 1, 2014, then repayment under IBR will last for 20 years. If you borrowed your first loan before July 1, 2014, then repayment under IBR will last for 25 years. This does not include any periods of deferment or forbearance.

After this time, any outstanding balance will be forgiven.

How much will I pay?

Like the repayment schedule, this will be impacted by when you borrowed.

If you borrowed your first loan on or after July 1, 2014, then your monthly payments will be 10 percent of your discretionary income. If you borrowed your first loan before July 1, 2014, then your monthly payments will be 15 percent of your discretionary income.

In either case, your payment amount is recalculated annually depending on your income and family size. If you are married and file taxes jointly, your spouse’s income will also be included in determining your payment amount. Your monthly payments will never be higher than they would be under Standard Repayment.

Because of the lower monthly payments and extended repayment term, you will ultimately pay more in interest under IBR than you would under either Standard or Graduated Repayment. Due to the forgiveness option, though, you would most likely pay less under this option than under the Extended Repayment plan.

That being said, you can always make additional payments in order to pay off your student loans faster, even under Income-Based Repayment. This can help you save money in the form of interest, and free you from your debt faster.

Can my loan be forgiven?

Yes. If you borrowed your first loan on or after July 1, 2014, then any balance that remains after 20 years of on-time payments would be forgiven. If you borrowed your first loan before July 1, 2014, then any balance remaining after 25 years of on-time payments would be forgiven.

Pros and Cons of Income-Based Repayment

Pros of Income-Based Repayment:

  • Payments are limited to either 10 or 15 percent of your discretionary income, depending on when you borrowed your loans
  • Your payments will never be higher than what you’d pay under Standard Repayment
  • Because payments are linked to your income, if your income decreases for whatever reason, your payments will decrease as well
  • Any remaining balance can be forgiven after 20 or 25 years, depending on when you borrowed your loans

Cons of Income-Based Repayment:

  • Borrowers who originated their loans before July 1, 2014 will be required to pay a higher percentage of their income as monthly payments
  • Because of the longer repayment term, you will ultimately pay more in the form of interest than you would under either the Standard or Graduated Repayment plans
  • You may owe taxes on any amount that has been forgiven
  • If you forget to update your income and family size each year, you may automatically be removed from the payment plan

How to Apply for Income-Based Repayment (IBR)

If you would like to opt into Income-Based Repayment, all you need to do is contact your student loan servicer. They will help you understand whether or not your loans are eligible for this repayment plan, and can answer any questions you may have. You can also apply by visiting this website.

Alternatives to the Income-Based Repayment (IBR) Plan

Not sure whether or not Income-Based Repayment is the right repayment plan for you? You have a number of other options to choose from. Depending on the specific types of loans that you have borrowed and your income, you may be eligible for: