What is IBR, the Income-Based Repayment Plan?

You did all the right things – you went to school, pursued the right major, earned good grades and snagged great internships.But now that you have graduated, you haven’t been able to find a job in your field. In the meantime you’ve moved back in with Mom and Dad and you’ve taken a last resort job.

Nonetheless, you have started receiving bills for your student loans, with no way to pay them. Even if you paid every penny you earned, you would still fall short of the monthly payment due. Take a breather. President Obama feels your pain, and has thrown you a lifeline.

The Income Based Repayment Plan

The main component of the Obama student loan relief plan has actually been in place for years. The Income-Based Repayment Plan (IBR) is based on the size of your loans relative to your income. Under IBR, the amount of your monthly payments is capped at fifteen percent of your disposable income. If your income is low enough, your monthly “payments” are set at zero. After twenty-five years of payments, including “zero” payments, any remaining loan amount is forgiven.

Eligibility for IBR is based on your adjusted gross income, household size, tax filing status, total amount of student loan debt and state of residence. If you’re currently in default on one or more of your loans, you are also not eligible for IBR. However, you can resolve any defaulted student loans by taking out a federal consolidation loan. Loans made under any of the programs listed below are potentially eligible for IBR:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans without underlying PLUS loans made to parents
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans without underlying PLUS loans made to parents
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PLUS loans made to parents, private education loans and consolidation loans that include PLUS loans made to parents are not eligible.

“Pay As You Earn”

Congress recently revamped IBR so that beginning in July 2014, payments are capped at ten percent of your disposable income for new borrowers, and the repayment plan has been clipped from twenty-five to twenty years. However, with a stroke of his executive order pen, President Obama instituted what the White House calls the “Pay as You Earn” plans that back-dated the lower monthly payments and shorter repayment period to 2012, allowing more than 1.6 million borrowers to benefit.

What’s the 411?

For more details about Income-Based Repayment, visit the IBR website here. . To learn more about “Pay as You Earn,” visit the White House Blog. To determine whether you are eligible for IBR or “Pay as You Earn,” contact each of your lenders and discuss your options. If you’ve lost track of your lenders or your loans have been sold, you can retrieve the information you need from the National Student Loan Data System (NSLDS) website.

With just a few clicks of a mouse and a phone call or two, you could be on the path toward lower monthly student loan payments. You may well discover that you have money to spend on something besides loan repayments. You might even think about moving out on your own.

This article was written by staff writer Audrey Henderson. Her mission is to help fight your evil debt blob and get your personal finances in tip top shape.
Photo: WH.gov

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