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    Using Income-Based Repayment And Pay As You Earn

    Borrowers must qualify to use income-based repayment (IBR) and Pay As You Earn. Doing so leads to a customized monthly loan payment—as well as a chance at forgiveness down the line.
    Updated: February 3, 2015

    What You'll Learn

    • Advantages of IBR and Pay As You Earn.
    • How to estimate your payments under these plans.
    • How to qualify and apply.

    Using Income Based Repayment and Pay As You Earn

    Income-based repayment (IBR) and Pay As You Earn are programs that base your payments on your income and family size—essentially customizing your payments to your situation. There are several different versions, depending on when you started borrowing, but they are generally the programs that offer the most affordable monthly payment.

    Stacking It Up: Compare Payments

    What your initial monthly payment could look like under different plans:

    Depending on your financial circumstances and repayment plan, your monthly payment may go up over time. The repayment period will vary for each repayment plan. To find out how long you will be making payments under this repayment plan and how we came up with these numbers, check out the bottom of the page.

    If you are single and have $35,000 in federal student loan debt, and only make $25,000 a year, your payment could be as low as $62 or $94 a month using IBR!

    The total amount you'll pay:

    The repayment period will vary for each repayment plan. To find out how long you will be making payments under this repayment plan and how we came up with these numbers, check out the bottom of the page.

    Keep in mind that if you make lower payments, you're paying interest for longer—and that makes your loan more expensive overall.

    Showing Our Work

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

    Original Amount Owed$35,000
    Interest Rate6.8%
    Annual Income$25,000
    Monthly Income$2,083
    Family Size1
    Repayment Period240 or 300

    The highlighted rows show the information income-based repayment uses to determine loan payments.

    IBR For New Borrowers Vs. IBR For Old Borrowers

    There are two different IBR programs. One is for borrowers who received their first Direct loan disbursement on or after July 1, 2014, and the other is for all of the other borrowers (i.e., "old borrowers").

    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 IBR payment. If you file separately, they won't.
    • If you are legally married to a same-sex spouse, your spouse's income won't be used in calculating your IBR payment because you can't file taxes jointly; however, 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 (10 years if you work in the public or nonprofit sector) 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 may 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 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 (10 if you work in the public or nonprofit sector) 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 may be taxable.
    • If you file your taxes jointly, your spouse's income and federal student loans will be included in calculating your IBR payment. If you file separately, they won't.
    • If you are legally married to a same-sex spouse, your spouse's income won't be used in calculating your IBR payment because you can't file taxes jointly; however, you can include your spouse in your family size.

    IBR: The Fine Print

    • You need to fill out the paperwork 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 if you qualify, but that means that your interest will build up over time—usually a lot more than 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.

    IBR: Loan Eligibility

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

    Ineligible loans include:

    Pay As You Earn

    This program was basically a way for the New IBR program to be enacted earlier than the scheduled date of 2014. However, there are strict eligibility requirements regarding when your loans were disbursed that may make it difficult to qualify.

    Pay As You Earn: The Fine Print

    • Like IBR, you will have to prove that you have a partial financial hardship—meaning the annual amount due on your federal student loans under standard repayment is more than 10% of your discretionary income. If you qualify, your payments will be no 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 IBR payment. If you file separately, they won't.
    • If you are legally married to a same-sex spouse, your spouse's income won't be used in calculating your IBR payment because you can't file taxes jointly; however, you can include your spouse in your family size.
    • The rest of your loan will be forgiven after 20 years (10 years if you work in the public or nonprofit sector) of repayment or 240 eligible payments, if you haven't repaid the loan in-full by that time. Don't forget that this amount is taxable.
    • 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.

    Pay As You Earn: Loan Eligibility

    The limitation of Pay As You Earn is that you must meet all of the following requirements to qualify:

    • Only Direct loans (Stafford, Grad PLUS, or Consolidation loans not including Parent PLUS loans) are eligible. You may consolidate into the Direct Loan program to gain eligibility.
    • You must be a "new borrower" as of October 1, 2007. That means you have no federal loans made prior to that date or have paid off all your prior federal loans before borrowing on or after that date.
    • You must have least one Stafford loan or Grad PLUS loan disbursed on or after October 1, 2011, or a Consolidation loan (as long as the consolidation did not repay any loans disbursed prior to October 1, 2007).

    Note that Parent PLUS loans and Consolidation loans that include Parent PLUS loans are not eligible for Pay As You Earn.

    Your Turn!

    Compare repayment plans by using our Repayment Navigator tool!

    Compare Your Payments

    How To Apply

    Many borrowers can apply for IBR or Pay As You Earn quickly and easily through the online application. Best of all, applying online will 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 at studentloans.gov and find the link labeled "Complete IBR/Pay As You Earn/ICR Repayment Plan Request" in the lower left hand sidebar: You can use this new form if you have Direct Loans or qualifying FFELP loans.

    If You Can't Use The Online IBR Form

    For IBR, some FFELP loan servicers will not accept the online form and require you to submit your paperwork in writing.

    1. Get Your IBR/Pay As You Earn/ICR Application

    Fill out the IBR 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.

    Actualizado: 3 febrero 2015

    Using Income Based Repayment and Pay As You Earn

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