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Income-Based Repayment

 

Designed to work with the borrower’s income and the borrower must have a partial financial hardship in order to participate.   A general rule of thumb is whether the borrower’s payment under the standard repayment plan is higher than the amount they would owe under the IBR plan.  The borrower must produce annual documentation of income and the monthly payment amount will be increased or decreased based on the borrower’s family size, income and loan amount.  It is important to note that, once a borrower qualifies under the IBR plan, they can continue to make IBR payments (even larger payments), even if they are no longer under a financial hardship.  This can become important of the borrower qualifies for Public Service Loan Forgiveness.

 

The length of the loan can be up to 25 years, so the loan’s costs may be considerably higher than that of a standard repayment plan.  However, if there is any remaining balance after the 25 year repayment period, the balance will be forgiven (Note: this amount may be may be subject to taxes).  Since the loan is based on 15% of the borrower’s discretionary income and is considered financial need based, the government will pay the interest on subsidized loans for up to three years from the date the IBR repayment period begins. Another huge advantage is that capitalized interest is prohibited, even if the interest accrues during periods of forbearance or deferment.

 

The program is available for all FFELP & Direct Stafford loans, as well as all PLUS loans for graduate or professional students and Direct or FFELP Consolidation loans, as long as they do not contain underlying parental PLUS loans.  To determine eligibility or calculate estimated payments, visit http://studentaid.ed.gov/repay-loans/understand/plans/income-based/calculator .

 

Income Contingent Repayment (ICR) Plan: restricted to Direct Loan borrowers,  the program is available for all Direct Stafford loans, as well as all PLUS loans for graduate or professional students and Direct Consolidation loans, as long as they do not contain underlying parental PLUS loans or FFELP loans (Note: an exception is made for parental PLUS loans that were consolidated into a Direct Consolidation loan on or after July 1, 2006).

 

Payments are based on family size, adjusted gross income, the total amount of the borrower’s Direct Loan Debt and the lesser of either 20% of the borrower’s discretionary income or the amount the borrower would repay on their loans in 12 years, multiplied by an income percentage factor that changes with the borrower’s documented annual income.    To estimate your payment or see if you qualify, visit http://studentaid.ed.gov/repay-loans/understand/plans/income-contingent/calculator .

 

If the loan accrues interest, the interest is capitalized once each year, up to a limit of 10% of the original balance at the time the borrower first entered repayment.  After this point, interest may continue to accrue but is no longer capitalized. The ICR plan’s repayment term is 25 years.  If a balance remains after the 25 loan period, the balance may be discharges, although the borrower may owe taxes of the amount forgiven.

 

Pay as You Earn Repayment Plan: similar to the IBR plan, but uses only 10% of the borrower’s discretionary income to calculate payments.  This plan first became available on December 21, 2012 and applies only to Direct Loans, although some FFEL program loans may be used to help determine if there is a partial financial hardship.  Again, as under the IBR plan, financial hardship is determined by whether the borrower’s payments under the standard repayment plan are higher than the amount the borrower would owe under the IBR plan.  Additional restrictions include:

 

• The borrower must be a new borrower as of October 1, 2007 (meaning they have no outstanding balance under either Direct or FFELP prior to October 1, 2007 or no outstanding balance for either loan program when the borrower received a new loan after October 1, 2007).

 

• The borrower must receive a disbursement on or after October 1, 2011.

 

 The program is available for all Direct Stafford loans, as well as all PLUS loans for graduate or professional students and Direct Consolidation loans, as long as they do not contain underlying parental PLUS loans or FFELP loans.  To determine eligibility or calculate estimated payments, visit

http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn/calculator .