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    Using Income-Based Repayment (IBR)

    Income-based repayment comes in two varieties. If you're eligible for either, you'll receive a customized monthly loan payment—as well as a chance at forgiveness down the line.
    Updated: December 17, 2015

    What You'll Learn

    • The differences between "old IBR" and "new IBR."
    • How much your payments could be under these plans.
    • How to apply for income-based repayment.

    A woman working in a store

    Income-based repayment (IBR) is one of a few different income-driven repayment plans offered to federal student loan borrowers. IBR bases payments on your income and family size—essentially customizing your payments to your situation.

    There are two different versions of IBR: "old IBR" and "new IBR." Which one you qualify for will depend on when you first received your loans. New IBR is for borrowers who didn't have a Direct loan or FFELP loan balance when they received their first Direct loan disbursement on or after July 1, 2014; old IBR is for everyone else.

    The Basics Of Old IBR

    • You have to prove that you are in a partial financial hardship—meaning the annual amount due on your federal loans under standard repayment is more than 15% of your discretionary income.
    • If you file your taxes jointly, your spouse's income and federal student loans will be included in calculating your payment. If you file separately, they won't. In either case, you can include your spouse in your family size.
    • If you qualify, your payments will generally be lower than they would be under standard, graduated, or extended repayment (no more than 15% of your discretionary income).
    • Whatever is left of your loan will be forgiven after 25 years of repayment and 300 eligible payments—if you haven't repaid the loan in full by that time. Just don't forget that this amount is taxable.
    • Your remaining balance may be forgiven after 10 years if you work in the public or nonprofit sector, and this amount wouldn’t be taxable.

    The Basics Of New IBR (New Borrowers As Of July 1, 2014)

    • You have to prove that you are in a partial financial hardship—meaning the annual amount due on your federal loans under standard repayment is more than 10% of your discretionary income.
    • If you file your taxes jointly, your spouse's income and federal student loans will be included in calculating your payment. If you file separately, they won't. In either case, you can include your spouse in your family size.
    • If you qualify, your payments are generally lower than other non-income-driven repayment plans. (No more than 10% of your discretionary income.)
    • Whatever is left of your loan will be forgiven after 20 years of repayment and 240 eligible payments, if you haven't repaid the loan in full by that time. Just don't forget that this amount is taxable.
    • Your remaining balance may be forgiven after 10 years if you work in the public or nonprofit sector, and this amount wouldn’t be taxable.

    The Fine Print

    • You need to reapply for IBR every year to reflect your updated financial situation: If you earn more, you'll pay more, and if you earn less, you'll pay less.
    • There is no minimum monthly payment under IBR. It can be as low as $0 per month and still count as a payment, but that means that your interest will build up over time—usually a lot more than with other repayment plans.
    • For the first 36 consecutive months (excluding any period when you have an economic hardship deferment), if your monthly payments don't cover the monthly interest accrued, you do not need to pay the amount accrued that you did not cover on subsidized loans or the subsidized portion of consolidation loans.

    Loan Eligibility

    Most federal loans are eligible, but there are a few exceptions. Eligible loans include:

    • Direct subsidized and unsubsidized Stafford loans
    • FFELP subsidized and unsubsidized loans (Old IBR only)
    • Direct Grad PLUS loans
    • FFELP Grad PLUS loans (Old IBR only)
    • Direct Consolidation loans (Perkins loans may be included in your consolidation, but Parent PLUS loans cannot)
    • FFELP Consolidation loans (Perkins loans may be included in your consolidation, but Parent PLUS loans cannot) (Old IBR only)
    • SLS loans

    Ineligible loans include:

    Stacking It Up

    Borrowers often wonder which income-driven repayment option to choose. Sometimes, this is easy to figure out—most borrowers won't actually qualify for every plan. However, here's a look at some key features of them all to help you figure out which is right for you.

     

    Old IBR

    New IBR

    PAYE

    ICR

    REPAYE

    Monthly payment

    15% of disposable income

    10% of disposable income

    10% of disposable income

    20% of disposable income

    10% of disposable income

    Eligible loan programs

    DL or FFELP

    DL

    DL

    DL

    DL

    Forgiveness length

    25 years (300 eligible payments)

    20 years (240 eligible payments)

    20 years (240 eligible payments)

    25 years (240 eligible payments)

    20 years (240 eligible payments) for undergrad loans only

    25 years (300 eligible payments) for grad loans

    Must prove partial financial hardship

    Yes

    Yes

    Yes

    No

    No

    Interest subsidy if payments don't cover interest

    Yes, subsidized loans first 3 years

    Yes, subsidized loans first 3 years

    Yes, subsidized loans first 3 years

    No

    Yes, subsidized loans first 3 years and 50% of difference afterward and 50% of difference on unsubsidized loans afterward

    Interest capitalization

    Yes, when there is no longer a partial financial hardship or leaves plan

    Yes, when there is no longer a partial financial hardship or leaves plan

    Yes, when there is no longer a partial financial hardship or leaves plan, but capitalization is limited to 10% of the original principal balance when entered this plan

    Yes, annually but limited to 10% of the original principal balance when entered this plan

    Yes, when the borrower leaves the plan

    More of a numbers person? No problem! Let’s look at what your initial monthly payment could look like under both IBR plans and other repayments plans.Keep in mind that your monthly payment may go up over time depending on your financial circumstances and repayment plan.

    New IBR payment $61/month; old IBR payment $91/month.

    Both IBR plans typically offer low payments, but that can mean paying interest longer—which makes your loan more expensive overall. Also, you can't count on forgiveness because you can repay the loan in full before 20 or 25 years and 240 or 300 payments. Here's the total amount you'd pay under IBR, compared to other plans. The repayment period will vary for each repayment plan.

    Overall payments are $39,461 under New IBR, $82,398 under Old IBR

    To come up with the graphs above, we used the following information:

    Original Amount Owed

    $35,000

    Interest Rate

    6.8%

    Annual Income

    $25,000

    Monthly Income

    $2,083

    Family Size

    1

    Repayment Period

    240 or 300

    How To Apply

    If you decide that either IBR plan is for you, you may be able to apply quickly and easily through the online application at studentloans.gov. You can use this new form if you have Direct loans or qualifying FFELP loans.

    By applying online, you'll allow your servicer to receive your tax information from the IRS—which could save you the time of requesting the information yourself. To get started, log in to your account and select "Income-Driven Repayment Request Form."

    If you can't apply online (some FFELP loan servicers will not accept the online form), you'll need to submit your paperwork in writing. Here's what to do:

    1. Get Your Income-Driven Repayment Request Form

    Fill out the application form and send it to your servicer.

    If you aren't required to file taxes or if your economic situation has changed substantially since your last filing, pay special attention to section 5 of this form, which covers other ways to document your income.

    Download Form

    2. Get Your Tax Information

    You will also need to provide information about your family size, income, and taxes, including filling out IRS Tax Form 4506-T.

    Tax note: If you are married, file separately, and live in AZ, CA, ID, LA, NV, NM, TX, WA, WI, or Puerto Rico, your AGI as reported on your tax forms may not accurately reflect your actual income or financial hardship. If this is the case, use the alternative documentation section of the application form to provide a more accurate individual income. This may help you qualify for IBR or get a lower payment if you already qualify.

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