Manage or Eliminate Student Loan Debt with IBR

Do you or someone you know have unpaid student loans?

According to eCredit Daily, approximately 38 million Americans have outstanding student loan debt. More importantly, many of them may qualify for a program they don’t even know exists.

It’s called Income-Based Repayment (IBR) and designed to help borrowers manage their student loan debt by lowering payments. Additional benefits, built into the program, provide for actual forgiveness of debt in some circumstances.

Qualifying for IBR

The Federal Student Aid website puts it in simple terms: To qualify for IBR, you must have a “partial financial hardship.” You have a partial financial hardship if your monthly payment under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to repay under IBR.

The Department of Education provides an online calculator you can use to estimate whether or not you qualify for IBR and what your monthly payment would be under the program.

Eligible and Ineligible Types of Loans

Most major types of federal student loans are eligible for IBR. They include:

• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans made to graduate or professional students
• Direct Consolidation Loans without underlying PLUS loans made to parents
• Subsidized Federal Stafford Loans
• Unsubsidized Federal Stafford Loans
• FFEL PLUS Loans made to graduate or professional
• FFEL Consolidation Loans without underlying PLUS loans made to parents

Loans that are not eligible for IBR include:

• PLUS loans made to parents
• Consolidation Loans that include underlying PLUS loans made to parents
• Private education loans

Monthly Payments

Under IBR, your payment amount may increase or decrease each year based on your income and family size. Once you qualify for IBR, however, you may continue to make payments under the plan even if you no longer have a partial financial hardship.

From a basic perspective, if you qualify for IBR and took your first student loan out before Oct. 1, 2007, you are eligible for a 25-year repayment period and payments capped at 15 percent of discretionary income.

If your first student loan was after that date, you can get a 20-year repayment period at 10 percent of discretionary income.

Digging a little deeper, monthly payments are based on income and family size and adjusted each year, based on changes to either of these factors.

Advantages of IBR

Your monthly payment will be either 10 or 15 percent of discretionary income and no more.

You will not be required to pay more than you would under the 10-year Standard Repayment Plan and the amount will probably be less.

If your payment doesn’t cover the interest that accrues, the government will pay that interest for up to three years from the date you began under IBR.

While you have a partial financial hardship, interest that accrues but is not covered by your payments is not capitalized.

Forgiveness of Debt

If you repay under IBR and meet certain other requirements, any balance after 25 years is forgiven (discharged).

If you work full-time for a public service organization and make 120 on time, full monthly payments under IBR you may be eligible to receive forgiveness of the remaining balance.

Disadvantages of IBR

You may very well end up paying more in interest charges over the life of the loan since you will be paying over a longer period.

You will be required to submit annual documentation to set your payment amount each year.

If you do not provide the required income documentation, unpaid interest will capitalize.

You may have to pay taxes on any loan amount that is forgiven after 25 years.

To Apply

Contact your loan servicer before you apply for IBR. Your loan servicer will answer your questions about the IBR plan and help you to decide whether IBR is the right plan for your situation.

Once you determine you want to apply for IBR, go to StudentLoans.gov, sign in, and complete the IBR Repayment Plan Request.

Other Options

If IBR is not right for you, or if you don’t qualify, contact your loan servicer to discuss other options. You may be able to extend your repayment period. You may also want to check into possible deferment or forbearance or even loan consolidation.