Income-Based Repayment Plan for Federal Student Loan Borrowers

 A new repayment option is now available from the Department of Education that lowers monthly payments for Americans with heavy federal student loan burdens. The new Income-Based Repayment (IBR) plan links payments to income and family size.

The new IBR program is available to borrowers repaying new and existing federal student loans (Direct or Federal Family Education Loans). Those with high student loan debt relative to their income also may be eligible for the IBR program.

For example, someone with student loan debt of $25,000 at 6.8 percent interest would have a monthly payment of $288 under the standard 10-year repayment plan. If the borrower were single with no dependents and had an Adjusted Gross Income (AGI) of $30,000, the monthly payment would drop to $172 per month, a reduction of $116 per month, or 40 percent, under the IBR Program.

Payments are recalculated each year.

Vicki Rolens, managing director for the Federation of American Consumers and Travelers (FACT), warns: "The lower payments will almost certainly result in longer repayment periods and increased interest charges. If you can live with the standard repayment plan, you may want to forego IBR."

Borrowers who wish to apply for IBR should contact their lender, who will determine eligibility. (Borrowers can use an IBR calculator to estimate monthly payments and get a good idea of their eligibility possibilities.)

A related program for borrowers working in public service jobs.

Borrowers who work in public service may be eligible to receive an additional benefit while using IBR: after 10 years, any remaining loan balance may be canceled. This Public Service Loan Forgiveness Program is available only in the Direct Loan Program to borrowers making payments while working full-time for the government, in schools, or for certain nonprofit organizations. (Borrowers with Federal Family Education Loans may be able to consolidate their loans into the Direct Loan Program in order to tap into this benefit.)


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