Degrees In Business Blog

The Income-Based Repayment Plan, or IBR, is a new way to make your student loans more manageable. It became available July 1, 2009. It applies to the major types of federal student loans available.

What is Income Based Repayment? IBR is a plan that determines your monthly student loan payment based on your income and family size. For lower income households, this could involve a payment that is considerably lower than your initial student loan’s assessed payment amount. This was prompted by the recession.

What federal student loans are eligible for IBR? Standard government loans, including:

• Stafford loans
• Grad PLUS loans
• Consolidation loans

This applies only for Direct Loan or FFEL program loans that are not: in default; parent PLUS loans; or consolidation loans that repaid a parent PLUS loan. The loans may be new or old, and for any type of education: undergraduation, graduate, professional, or job training.

How much do I have to pay per month through IBR? The government has a calculator available to help you assess this.

What are the advantages of IBR? You pay as you earn. Your monthly payment amount will be less than your standard 10-year plan and may be less than other repayment plans. If your IBR does not cover your interest, the government covers the additional expenses of interest so your student loans do not increase. If you pay under IBR for 25 years and you still have not paid your student loans back, the remaining balance is waived. If you work in public service, this is reduced to 10 years.

What are the disadvantages of IBR? You may end up paying more interest over the 25 years. The faster you pay your loans off, the less interest you pay. You also are required to submit annual documentation so that your lender has up-to-date information on your income and family size.