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Income-Based Student Loan Repayment, Is it right for you?

Are your Federal student loan payments giving you a headache? Then you might want to consider enrolling in the Income-Based Repayment (IBR) Plan.

IBR is a type of income-driven repayment (IDR) plan and can lower your monthly student loan payments. Student loans have the highest interest rates out there combined that with a high balance and your in some trouble, an IBR plan can provide much-needed relief.

Now that your getting a better understanding, you’ll want to be sure you understand IDR plans and how they can affect your finances and student debt. This complete guide to the IBR plan will demystify this option and help you figure out if it is right for you.


What is IBR?

The term “Income-Based Repayment” is often misused as a catchall for the various IDR programs available today.

But IBR is just one of the four IDR plans offered by the Department of Education. Income-Based Repayment (IBR) is the most widely available income-driven repayment (IDR) plan for federal student loans that has been available since 2009. Income-driven repayment plans can help you keep your loan payments affordable with payment caps based on their income and family size.

Since income-based student loan repayment falls under IDR plans, let’s first take a look at what these options have in common.


Enrolling in IBR or other IDR plans

Only federal student loans are eligible for IDR plans — not private student loans. The types of federal student loans you have might also have a determining factor on which IDR plans you’re eligible to enroll in.

Since your income is key to how your payments are calculated, you’ll also need to certify your income upon initially enrolling in an IDR plan. Your payments are re-evaluated and recalculated each year, so you’ll need to recertify your income annually to stay on the plan.

You can also recalculate your payments at any time during certain situations such as after a job loss.

How IDR plans lower your monthly costs

The 10-year standard repayment schedule is the default for student loan borrowers, but it’s not always affordable. High student loan balances will mean high monthly payments, which can be tough to keep up with.

An income-driven repayment (IDR) plan could help you cut your monthly payments drastically, tying the amount you have to pay to the amount you earn, which can help you handle your debt a lot easier. Let’s review the details to see how income-based repayment works.

According to Federal Student Aid, such a plan is intended to make your payments affordable while taking income and family size into account.

Specifically, IDR plans set payments at a percentage of your discretionary income. For example, IBR sets payments at 10% to 15% of your discretionary monthly income, depending on when your loans were disbursed.

Your discretionary income is calculated by finding the difference between your adjusted gross income and 150 percent of the annual poverty line for a family of your size and in your state. This means your student loan payments are individualized to match your specific income, costs of living, and family size under IDR plans.

What is an IDR?

An income-driven repayment (IDR) plan is a repayment plan for people with federal loans created to make your monthly loan payments more affordable. Income-driven repayment plans don’t cover private loans.

Income-driven plans base your monthly payments on how much money you make. The best part is that if you don’t have a job, or if your income is low enough, you can bring your payments down to as low as $0.


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