Income Based Repayment Programs

Income-based repayment plan is one of the types of income-driven repayment plans. This repayment plan takes the borrower’s monthly income and family size into account and caps the monthly payments to an amount that’s affordable to the borrower. In addition to this, the outstanding balance after 25 years of qualifying monthly payments can also be forgiven under this repayment plan.
How Do Income Based Repayment Programs Work?

Income driven repayment plans: The borrower can repay the loan in small monthly payments. The amount of payment is determined by the borrower’s monthly income and their family size, and is capped to 5%-15% of their discretionary income depending on the program they qualify for. For borrowers who took out a Direct loan on or after July 1st, 2014 and who have no outstanding balance on FFEL or Direct Loan, they can pay back the loan in monthly payments capped at 10% of their discretionary income.

Monthly payments can be adjusted every year, and any remaining balance is forgiven after 25 years of qualified monthly payments.

Benefits of an Income Driven Repayment Program

These repayment plans is best suited for....

borrowers who have a high debt-to-income ratio and who can’t pay back the loan using standard repayment plan. Also, if borrower’s gross income is less than 150 percent of the poverty line, under the income-based repayment plan, the monthly installments will be $0.In addition to this, working at a low-salaried job and having a large family also helps in qualifying for income-based repayment plan.

Facing Financial Hardship?

The income-based repayment plans are offered only to those borrowers who are facing a partial financial hardship. The definition of partial financial hardship is satisfied if the outstanding balance on loan is greater than 15% of the difference of borrower’s adjusted gross income and 150% of the poverty line. Poverty line is determined on the basis of borrower’s state of residency and their family size.
What Types of Loans are Eligible for Income-Based Repayment Plan?

The following loans can be paid back using the income driven repayment programs:

  • All direct loans, subsidized and unsubsidized
  • All FFEL loans, subsidized and unsubsidized
  • Direct and FFEL PLUS loans taken out by students
  • Direct and FFEL consolidation loans taken out by parents (must not include any PLUS loans)
  • Consolidated Federal Perkins loans
How Many Income Driven Repayment Programs Are There?

There are a number of different programs. The one that works best for you is determined by your loan type, status and origination date.

  • Pay As You Earn (PAYE)
  • Revised Pay As You Earn (RePaye)
  • Income Based Repayment Program (IBR)
  • Income Contingent Repayment Program (ICR)
  • SAVE Plan

“If you want to be financially free, you need to become a different person than you are today and let go of whatever has held you back in the past.”

— Robert Kiyosaki