An Income Based Repayment Plan (IBR) is a repayment plan that can help student loan borrowers get a more affordable monthly student loan payment based on income and the size of their family.
The Income Based Repayment plan was created to help student loan borrowers achieve an affordable student loan payment that they can actually afford. This repayment plan originated from the passing of the Health Care and Education Reconciliation Act of 2010.
Over the years, the program earned the nickname “Obama Student Loan Forgiveness”. However, that is not the correct name. While Obama was in office when the program passed, the real name for this program is called the William D. Ford Direct Loan Program.
As part of the act, the Department of Education offers a variety of student loan repayment plans that assist student loan borrowers with their unique financial situation.
Student loan borrowers entering the Income Based Repayment plan will have access to the following benefits:
- A student loan payment that is based off of their income and the size of their family
- A student loan payment that will never exceed 15% of the loan borrowers discretionary income
- The possibility of having a student loan payment of $0.00
- The borrower doesn’t have to pay any interest not covered by the borrower’s monthly payments for the first three years in the repayment plan
- The possibility of having the remainder of their student loan balance forgiven after 20 to 25 years of consecutive payments
What types of loans are eligible for the Income Based Repayment Plan
Student loan borrowers that have loans made under the Direct Loan Program or the FFEL Program are eligible for the Income Based Repayment Plan.
Loans eligible for an Income Based Repayment Plan include:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans that don’t include repaying Plus loans made to parents
- Subsidized Federal Stafford Loans (made under the FFEL Program)
- Unsubsidized Federal Stafford Loans (made under the FFEL program)
- FFEL PLUS Loans for graduate and professional students
- FFEL Consolidation Loans that didn’t repay any PLUS loans made to parents
- Federal Perkins Loans (*if they are consolidated)
Who is the income based repayment plan for?
A student loan borrower can benefit from the income based repayment if they meet the criteria below:
- Struggling to make their full student loan payment each month
- Anyone with a low income compared to their student loan debt
- Your current monthly student loan payment is more than 10% of your income
- If you have no outstanding balance on any other Direct Loan of FFEL Program loan if you received a direct loan on or after July 1, 2014.
- Direct Loan borrowers can qualify for the IBR Plan
Who is the IBR not for?
The Income Based Repayment Plan may sound like a great idea. Who wouldn’t want a lower student loan payment? However, not all student loan borrowers are eligible to enter an IBR Plan.
Here are some factors that can make you ineligible for an IBR Plan:
- Student loan borrowers that have a high income and low family size
- Your current monthly payment does not exceed 10% of your income
- Any borrower that can comfortably make their current Standard monthly payment
- Any borrower that doesn’t want to make student loan payments for the next 20 to 25 years
- Student loan borrowers that have Parent Plus loans
- Student loan borrowers that are not considered to have a partial financial hardship
Am I eligible for the IBR Plan?
It’s important to remember that every loan borrower’s situation is different and not everyone will qualify for the Income Based Repayment plan.
Here are the eligibility requirements for an IBR Plan:
- Borrowers that have loans made under the Direct Loan Program or the FFEL Program.
- After taking your information, your IBR Plan monthly payment must be less than the 10 -year Standard Repayment Plan monthly payment.
- You must be considered to have a partial financial hardship to be eligible for an income driven repayment plan
How long will I be in the IBR Plan?
If you’re a new student loan borrower (you didn’t take out any loans until July 1, 2014 and later) the repayment period for the IBR Plan is 20 years.
If you’re not a new student loan borrower, the repayment period for the IBR Plan is 25 years.
Remember: If you’re expecting to get the remaining loan balance forgiven at the end of the repayment plan, you must make the consecutive payments every month during the repayment plan.
That’s right. You cannot miss a payment and the payments must be on time. You will need to make 240 – 300 payments to qualify for Student Loan Forgiveness at the end of your repayment program.
If you do enter an IBR Plan and decide it’s not the right plan for you, you can choose to take yourself out of the plan. However, you’re going to be placed back into the Standard Repayment plan that you started off in. To get back out of the Standard Repayment Plan, you’ll have to make one payment under the Standard Repayment Plan. If you can’t afford a Standard Payment, you can request a reduced-payment forbearance.
Is the payment the same each month?
The payment you start off with in an IBR plan will last 12 months or until it is time for you to apply for recertification. Income driven repayment plans require student loan borrowers to re-certify their status in the program every year.
Recertification is an annual process of the income driven repayment plans that cannot be skipped. You must recertify each year to get back into the same IBR Plan. If you forget to do the recertification process, you get placed back into a Standard Repayment Program.
After you re-certify each year, your monthly payment can change. Your payment can increase, decrease, or stay the same. It all depends on where you stand financially.
Here are some factors that can change your monthly payment:
- You made more money on your most recent tax return
- You made less money/ lost your job
- You get married and filed taxes jointly
- You recently had a baby or gained a dependent that receives more than half of their support from you
Which income driven repayment plan is the best for me?
While there are four income driven repayment plans, not all income driven plans are built for everyone. Depending on your unique financial situation, there might only be one repayment plan that makes sense for you.
Sometimes borrowers qualify for multiple income driven repayment plans and can’t decide which one makes the most sense.
Need help with that? Give us a call.
What factors come into play with the IBR
Your eligibility for the program is calculated based on the following factors:
- Your income – if you’re married and file taxes jointly, your spouse’s income is combined with your income
- Family size – this number includes you, your spouse (*if you are legally married) and the number of children or people that live with you and receive more than half of their support from you.
- Current Student Loan Payment – your newly calculated IBR Plan monthly payment needs to be lower than your current Standard payment
- Type of loans – the IBR Plan is available to borrowers with eligible loans made under the Direct Loan Program or the FFEL Program
What other options are there for me to repay my student loans?
The Department of Education offers a variety of student loan repayment programs to assist student loan borrowers with different financial situations.
There are four income driven repayment plans:
- Income Based Repayment Plan
- Income-Contingent Repayment Plan
- Pay As You Earn Repayment Plan
- Pay As Your Earn Revised Repayment Plan
There are four standard payment plans:
- Standard Repayment Plan
- Graduated Repayment Plan
- Extended Repayment Plan
- Income-Sensitive Repayment Plan