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All About Income Based Repayment (IBR)

 
  • As of 2012, 5 million Americans had fallen behind on student loan payments.
  • Over the last decade, student loans in delinquency have steadily risen to the point that they now surpass mortgages, credit cards and auto loans. About 11.5% of student loan balances are 90+ days delinquent or in default
  • Currently, approximately 1.86 million people are enrolled in Income Based Repayment.
  • IBR ties the size of your monthly loan payment to your income and family size.
  • To qualify for IBR, you must show “partial financial hardship,” by showing that IBR would lower your monthly payments to an amount less than a standard repayment plan.
  • Most federal loans under the Ford Federal Direct Loan Program or Federal Family Education Loan Program are eligible for IBR.
  • Loans that are not eligible include PLUS Loans made to parents and private loans.
  • Once approved, monthly payments under IBR are:
    • Always lower than payments on a 10-year standard plan
    • Adjusted yearly for changes in family size or income
    • Made over a period of 25 years
  • While IBR generally means more long-term interest, in some cases the government will pay accrued interest or limit the capitalization of interest.
  • Even borrowers using IBR may qualify for 25-year forgiveness or 10-year Public Service Loan Forgiveness.
  • To apply for an Interest Based Repayment Plan, go to studentloans.gov
  • The amount forgiven at the end of an IBR program is treated as taxable income while the amount forgiven under the PSLF program is not considered taxable income. A borrower using the IBR program and not in public service must prepare for the tax bill of the forgiven amount in the final year

Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, Page 2 (Feb. 2014), available at http://www.newyorkfed.org/householdcredit/2013-Q4/HHDC_2013Q4.pdf (last visited Sept 23,2014).

U.S. Dept.of Education Federal Student Aid, Servicer Portfolio by Loan Status (June 2014), available here [Excel download] (last visited Sept. 23, 2014).

Johnston, Jarrod and Roten, Ivan C., The Implications of Income-Based Repayment and Public Service Loan Forgiveness on Student Loan Debt (August 10, 2014). Available at SSRN: http://ssrn.com/abstract=2480446


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