The following information is about the Income Based Repayment plan for the federal student loans. The information includes the eligibility criteria, calculation of payment and benefits of the plan with some examples to make the understanding easier. Some common questions answered;
What is the Income Based Repayment?
As the name suggests, Income Based Repayment is a new scheme of repaying the loans taken by the students. Under this scheme, the student can repay the loan as per his monthly income and family size. For example, if your income allows you to pay only $500 a month towards repaying your loan, your loan repayment will be capped at $500.
What type of the federal student loans can be repaid under the IBR scheme?
GRAD plus, Stafford or Consolidation Loan made under either of the FFEL or Direct Loan program come under this scheme. Besides, these, the EXCEPT loans under default, consolidation loans that repaid a parent PLUS loan will also come under the IBR scheme. The student loans can be for any level of study) under graduate, graduate and even for job training) and can be new or old.
What is the eligibility criterion for IBR?
You may be allowed to enter the IBR if your student loan amount is higher relative to your family income. The IBR department provides a calculator to determine if your loan amount qualifies to come under this scheme. The factors taken into consideration while applying for the IBR include family income, size of the family and the loan amount. The table below shows the calculation briefly for the year 2009.
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After it has been determined whether you are eligible for the program or not, the initial payment will be calculated. The repayment amount will be adjusted each year with changes in the income amount and family size. The amount that is required to be paid will not be more than the standard 10 year amount.
How do I benefit from thee IBR?
What could be the disadvantages of this program?
* You can pay as you earn. This simply means, if in a month, you earn 100 dollars, your repayment amount will perhaps be $10 and when you are earning $500. Your repayment amount will be $100. As you can see, with increase in your income, the percentage of income that goes into the repayment has also changed from 10% to 20% of the total income. The monthly payments under such schemes are lesser than those in the standard 10 year plan.
* Interest Payment Benefit: Suppose you are unable to part with the repayment amount in the first two years due to some reason. In such a case, if the reason for non repayment is valid, the government will pay the interest amount and after the three years of having entered the scheme, the government payment will be added to the principal amount that you need to pay from the start of the fourth year onwards.
* Benefit of 25 year cancellation: If you have regularly paid every installment for 25 years toward repaying, any balance amount at the end of 25 years will be waived.
* 10 year public service loan forgiveness: If you have worked in a public service job for 10 years and have made a repayment every single month while at the job, the loan balance at the end of the 10 years will be waived. This benefit has some exceptions. This rule is valid only for people who have Direct Loans and make 120 monthly payments (10 years) under this program.The public service loan forgiveness fact sheet can be referred for a more detailed information on this.
If you drag the time for repaying the loan, you may end up paying more than the actual loan amount in interests. Apart from this, annual documentation giving information of the family size and income amount needs to be submitted failure of which will revert you back to the standard 10 year repayment scheme.
How is the IBR amount determined?
Under this scheme, the repayment amount for each month is based on the borrower’s Adjusted Gross Income and family size. The annual IBR amount works out to be 15% of the difference between the borrower’s AGI and 150% of the Poverty Guidelines set by the Department of Health and Human Services, adjusted as per the family size.
