Paying Off

What is the IBR Repayment Plan for Student Loans?

Updated On May 3, 2019

Struggling to make ends meet while paying off your federal student loans? You're not alone. But the good news is that help is available.

The government offers four income-based repayment plans — which adjust your monthly student loan payments based on how much money you make. Among the options is Income-Based Repayment, or IBR, which lowers student loan bills when you’re struggling to pay them. If you're interested in this option, here's what you should know.

What is IBR?

As we mentioned above, IBR is one of four income-driven student loan repayment plans.

These plans base your payment on how much you make, unlike the Standard Repayment Plan which is based on on your loan balance. caps your student loan payment at 10-15% of your discretionary income and stretches your loan term to 20 or 25 years, depending on when your loans were disbursed.

Do you qualify for IBR?

To qualify for IBR, you must prove your student loan payments are disproportionately high compared to your income.

Specifically, your payments under IBR would have to be lower than they would be under the Standard Repayment Plan. (We'll talk about how to figure that out in a moment.)

All federal Direct student loans qualify for this plan, except those made to parents. However, Federal Perkins Loans are only eligible if consolidated.

When is IBR a good idea?

IBR is very similar to another repayment plan, called PAYE. But PAYE restricts eligibility to new borrowers as of Oct. 1, 2007, while IBR has no such eligibility requirements. That makes IBR a great option for graduates whose loans were disbursed before Oct. 2017 and those who otherwise do not qualify for PAYE.

How is payment calculated under IBR?

IBR offers different terms for two sets of borrowers:

For new borrowers on or after July 1, 2014, payments are capped at 10% of your discretionary income with a loan term extended to 20 years.
For borrowers whose first loans were disbursed before July 1, 2014, payments are capped at 15% of your discretionary income with a loan term of 25 years.

Use our Income-Based Repayment Calculator to get an estimate of what your student loan payment would be under this plan. Or, if you're really into math, your discretionary income can be calculated by subtracting 150% of your state’s poverty level (based on household size) from your household income. Your annual payment is equal to 10% or 15% of this amount.

Don't forget that your payment amount will increase as your income increases — and yes, you're required to submit income verification regularly.

What are the pros and cons of IBR?

IBR offers you a lower monthly payment, helping you to better manage your debt. But one of the biggest perks to IBR is what comes after your loan term. After 20 or 25 years of making on-time payments under IBR, the remaining balance on your loan will be forgiven.

However, be aware that you'll have to pay taxes on the forgiven loan amount.

How do I enroll in IBR?

You can enroll in IBR by filling out an application through the government online. There is no application fee to complete this application, and the process only takes 10 minutes or less. You'll be asked about your financial situation, so be prepared with documents that prove your income, like a W-2.

Still not sure if IBR is for you? Check out other ways to lower your monthly payment.

Published in: Paying Off, Lower Payments

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