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How the federal Income-Based Repayment Plan works

The only IDR plan available for unconsolidated FFEL Loans issued to students.

Updated

The federal Income-Based Repayment (IBR) Plan allows student borrowers to make payments based on a percentage of their monthly income. One of the four income-driven repayment (IDR) options available, it’s ideal if you’re struggling to make standard repayments or have FFEL Loans that haven’t been consolidated. But keep in mind the longer term will increase the overall cost of your loan.

Income-Based Repayment Plan at a glance

Eligible loansHow much you payRepayment termWho it’s best for
  • Direct Subsidized and Unsubsidized Loans
  • Direct Graduate PLUS Loans
  • Direct Consolidation Loans that don’t include Parent Plus Loans
  • FFEL Loans that don’t include Parent PLUS Loans
10% or 15% of your monthly discretionary income — depending on when your loan was first issued20 or 25 years — depending on when your loan was first issuedStudent borrowers …

  • Struggling to make repayments under the 10-year Standard Repayment Plan
  • Interested in loan forgiveness — including the Public Service Loan Forgiveness Program
  • Looking for income-driven repayments on their FFEL Loans that haven’t been consolidated

How does the Income-Based Repayment Plan work?

Repayments under the federal Income-Based Repayment Plan are calculated based on a percentage of your monthly discretionary income. Discretionary income is the difference between your annual income and 150% of the poverty guideline for your family size and state.

The amount you pay and your loan term depends on when your loan was first issued:

  • Loans issued before July 1, 2014: 15% of your monthly discretionary income for 25 years
  • Loans issued after July 1, 2014: 10% of your monthly discretionary income for 20 years

Even if your income increases while on the IBR Plan, monthly repayments will never be higher than those on the 10-year Standard Repayment Plan.

After your term is up, the federal government will forgive any remaining loan balance.

How to calculate your monthly discretionary income

Am I eligible for the IBR Plan?

There are only two main eligibility requirements to qualify for the Income-Based Repayment Plan:

  • Eligible federal loans. All federal Direct and FFEL Loans qualify except those issued to parent borrowers — even with consolidation.
  • Repayments lower than the Standard Repayment Plan. Otherwise, there’s no point in signing up for the IBR Plan. You can use the repayment estimator on the Federal Student Aid website to see if you might benefit.

Can I qualify for forgiveness on the IBR Plan?

Yes, one of the benefits of being on the Income-Based Repayment Plan is the option for loan forgiveness. If you’re able to make consistent repayments under the IBR Plan for 20 or 25 years, the government forgives any remaining balance at the end of the loan term.

And the IBR Plan can also help you qualify for federal forgiveness programs, including Teacher Loan Forgiveness and Public Service Loan Forgiveness (PSLF). Since income-based repayments are lower than standard repayments, you can maximize the amount forgiven.

Just keep in mind the IRS considers any forgiven debt taxable income, which could lead to a large tax bill come April.

Pros and cons of the Income-Based Repayment Plan

The IBR Plan isn’t right for everyone — consider the benefits and drawbacks before signing up.

Pros

  • Could pay as little as $0 per month depending on your family size and income
  • Repayments adjusted as your situation changes
  • All Direct and FFEL Loans issued to students qualify
  • Opportunity for loan forgiveness at the end of the loan term
  • Can be used to qualify for Teacher Loan Forgiveness and PSLF

Cons

  • Not open to Direct or FFEL Parent PLUS Loans
  • Longer repayment term increases the overall cost of your loan
  • Must reapply and submit updated documentation each year
  • Failure to resubmit documentation causes interest to capitalize
  • Owe taxes on any forgiven debt at the end of your loan term

Is the Income-Based Repayment Plan right for me?

You might want to consider signing up for the IBR Plan if:

  • You moved or your family size changed, which is making it difficult to handle your current loan payments.
  • You’re interested in loan forgiveness either through your profession or the IBR Plan.
  • You want income-driven repayments on your FFEL Loans that haven’t been consolidated.

How to apply for the Income-Based Repayment Plan

When you’re ready to sign up for the Income-Based Repayment Plan, you have two options:

  • Apply online. Submit the IBR Plan application form through the Federal Student Aid (FSA) website.
  • Apply by mail. Print the application and send it to your student loan servicer directly.

If you’re working with multiple servicers, you may need to submit separate applications to each one. Along with the application, you’ll also need to show proof of your adjusted gross income (AGI) so that your discretionary income and payment amount can be calculated.

Depending on how you apply, it can take a few weeks for your servicer to process your application. During this time, you should continue to make payments under your current repayment plan. If you’re unable to make those payments, speak with your servicer about forbearance options until the application processes.

What counts as proof of my AGI?

If you’ve filed federal taxes within the last two years and your current income hasn’t changed significantly, then you have two options for submitting proof of your AGI:

  • Applying online. Use the tax data retrieval tool on the FSA website to import your tax information directly from the IRS.
  • Applying by mail. Submit a paper version of your most recent tax return or IRS tax transcript.

If your income has changed drastically in the past two years or you haven’t filed taxes, the documentation you need to provide varies depending on whether you’re currently employed or not:

  • Employed. Submit a copy of your current pay stub by mail.
  • Unemployed. Check the box on the IBR application indicating you’re not receiving taxable income. You won’t need to include additional documentation.

Do I need to reapply each year?

Yes, you’ll need to recertify your application each year by submitting documentation about your family size and income. Your loan servicer should let you know when the deadline is.

Your monthly payment will only change after your new documentation is received. Although it’s only required during the annual review, if a change occurs that would lower your monthly payment, you can report it at any time.

What happens if I forget to recertify?

If you forget to recertify your income, your repayments will revert back to what they’d be on the 10-year Standard Repayment Plan.

Not only would this significantly increase your monthly repayments, but it will also cause any unpaid interest on the loan to be capitalized and added to your total loan balance. This means you’re essentially paying interest on interest — increasing the total cost of your loan.

And if you recertify your income but not your family size, your servicer will assume your family size is one. Depending on the amount of people in your family, this can also significantly impact your repayments.

Fortunately, your repayments can be corrected at any time by submitting the necessary documentation.

Alternatives to the IBR Plan

If you’re not sure the Income-Based Repayment Plan is right for you, you might want to consider one of these other options:

  • Graduated Repayment Plan. If you’d rather have a shorter loan term, this plan allows you to make repayments over 10 years that start low and increase over time — ideally with your salary.
  • Extended Repayment Plan. A good option for borrowers with more than $30,000 in debt, this plan offers low monthly repayments spread out over 25 years.
  • Income Contingent Repayment (ICR) Plan. Are you a parent borrower? This is the only IDR plan you can qualify for. It offers repayments based on 20% of your discretionary income over 25 years. Weigh the two against each other with our side-by-side comparison of the IBR versus ICR Plans.

Interested in refinancing instead? Compare your options

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Bottom line

The IBR Plan can offer relief on your student loan repayments if you’re currently unemployed, took a pay cut or are thinking of changing jobs. It’s especially ideal for student borrowers with FFEL Loans — it’s the only income-driven option available. However, keep in mind the longer loan term will make your loan more expensive in the long run.

You can see how it stacks up to other options with our guide to student loan repayment plans.

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