I share an office space with Karen, one of MMI’s budget and debt counselors. Over lunch today, Karen was telling me that a lot of her clients have been asking about student loan repayment, specifically about Income Based Repayment (IBR). IBR was introduced in July 2009 and allows qualifying federal student loan debtors to base their monthly student loan payments on their income. Here are some of the highlights of IBR:
- IBR is for past, current, and future federal student loan debt.
- IBR is for people whose student loan debt is high relative to their income. To see if you qualify, use this simple calculator.
- If you qualify for IBR, the amount you are required to repay each month would be based on your gross income and family size. More specifically, the annual amount due would be 15% of the difference between your gross income and 150% of the Department of Health and Human Services Poverty Guidelines. To get the monthly payment, divide that total by 12. You can also use this Income Based Repayment Chart Generator to estimate your monthly payments.
- For most borrowers, any debt remaining after 25 years will be forgiven; this does include interest. For some public service (education, government, and nonprofit) employees, debt remaining after 10 years will be forgiven.
- Contact your student loan servicer to apply. You can get contact information for your servicer by visiting the National Student Loan Data System.
In the future, look for changes to IBR that were outlined in the The Health Care and Education Reconciliation Act of 2010. For example, the Act changes the loan forgiveness from 25 years to 20 years. However, it only applies to new borrowers of new loans taken out after July 1, 2014.
If you are struggling with student loan debt, but IBR is not the right option for you, there may be other solutions. For information about consolidation, deferment, forbearance, and cancelation read Payback time: How to repay your student loans.