For the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.
Kat Tretina Personal Finance WriterFor the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.
Written By Kat Tretina Personal Finance WriterFor the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.
Kat Tretina Personal Finance WriterFor the past seven years, Kat has been helping people make the best financial decisions for their unique situations, whether they're looking for the right insurance policies or trying to pay down debt. Kat has expertise in insurance and student loans.
Personal Finance Writer Mike Cetera Editor in Chief, Forbes Marketplace U.S.Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.
Mike Cetera Editor in Chief, Forbes Marketplace U.S.Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.
Written By Mike Cetera Editor in Chief, Forbes Marketplace U.S.Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.
Mike Cetera Editor in Chief, Forbes Marketplace U.S.Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.
Editor in Chief, Forbes Marketplace U.S.Updated: Sep 22, 2020, 6:00am
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For federal loan borrowers struggling to make ends meet, there may be a way to get some relief: Enroll in an income-driven repayment (IDR) plan. The income-based repayment (IBR) plan is the second-most popular IDR plan, following Revised Pay As You Earn (REPAYE). As of 2020, 2.75 million borrowers are enrolled in IBR, with $172.6 billion in student loans in repayment.
If you’re considering enrolling in IBR, here’s what you need to know about this student loan repayment plan.
Federal loan borrowers who cannot afford their loan payments may qualify for IDR plans, which base their monthly payments on a borrower’s discretionary income and family size. There are four different IDR plans, and IBR is a top choice for many borrowers. Depending on your income and family size, you could substantially reduce your monthly payments by choosing this repayment plan.
For new borrowers, meaning borrowers who took out loans on or after July 1, 2014, your monthly payment under IBR is set at 10% of your discretionary income. However, your payment will never exceed what your payment would be under a standard 10-year repayment plan. Your repayment term will be 20 years in length, regardless of whether your loans were for undergraduate or graduate study.
If you don’t qualify as a new borrower, your payment is capped at 15% of your discretionary income, but it will never be more than what your payment would be under a standard repayment plan. Your repayment term will be 25 years.
For IBR, the U.S. Department of Education defines your discretionary income as the difference between your household income and 150% of the poverty guideline for your family size and state.
Let’s say, for example, you live in Georgia, are married, have two children, and have an adjusted gross income (AGI) of $50,000 per year. The poverty guideline for your family size and state is $26,200.
First, calculate 150% of the poverty guideline—$39,300. Your discretionary income is the difference between 150% of the poverty guideline and your AGI, so subtract $39,300 from your AGI to get $10,700. If you’re a new borrower on or after July 1, 2014, your payment under IBR is 10% of your discretionary income, or $1,070. Divide that number by 12, and your monthly student loan payment is $89.17.
If you apply for IBR, you can use the repayment plan as a path for loan forgiveness. IBR can be used toward two different forms of loan forgiveness:
Only loans whose payments are up to date qualify for IBR; defaulted loans are not eligible.
To qualify, the payment you would make based on your family size and income for IBR must be less than what you would pay under a standard repayment plan with a 10-year repayment term. If the amount is more, you wouldn’t benefit from IBR and you won’t qualify. In general, you’ll qualify for IBR if your federal loan balance is higher than your annual discretionary income.
The following federal loans are eligible for IBR:
The following federal loans are not eligible for IBR:
If you have federal parent loans, such as Parent PLUS Loans, your repayment options are limited. The only IDR plan available to you is income-contingent repayment (ICR). You must consolidate your loans with a direct consolidation loan before you can take advantage of ICR.
To apply for IBR, you can submit the income-driven repayment plan request online, or you can fill it out and mail it. You also can contact your loan servicer directly and ask for an income-driven repayment plan request form.
You can select an IDR plan by name, or ask that your loan servicer place you in the one that will give you the lowest possible monthly payment. If you have multiple federal student loans, you have to submit a separate IDR request for each loan you have.
The application will ask for the following information:
It may take your loan servicer a few weeks to process your request, and the servicer may place your loans into forbearance during that time. Forbearance means the loan servicer postpones your payments, but you won’t become delinquent or enter default.
Each year, you have to recertify your income and family size by the annual deadline. Your loan servicer will send you a notification ahead of time reminding you to submit your information.
If you miss the deadline while on IBR, your monthly payment will no longer be based on your income. Instead, your loan servicer will set it at what it would be under a standard repayment plan with a 10-year term, based on the original loan amount when you first entered into the IBR plan. Any unpaid interest will be capitalized—meaning it will be added to the principal—increasing the total cost of the loan.
You can only return to the IBR plan if you submit updated information and still qualify based on your new income and family size.
IBR has some distinct advantages over other repayment plans:
While IBR can be beneficial for some borrowers, there are drawbacks to consider:
Before applying for IBR, it’s wise to consider your other repayment options. There are three other IDR plans that may be a better fit:
You can use the federal Loan Simulator to see what your monthly payment would be and how much you’d pay in interest over the life of your loan under each plan.
