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Do You Qualify for Student Loan Income-Based Repayment Plans?

Late in 2011, according to estimates by the Consumer Financial Protection Bureau, total student loan debt in the United States passed the $1 trillion mark [3].

That’s a lot of student debt.

Many graduates struggle to find jobs, or work in low-paying jobs that don’t come close to allowing them to afford their student loan payments [4]. It’s a lot of work to pay for college [5], and many students keep paying for years following graduation.

However, there are options. And you don’t have to just rely on forbearance or deferment [6]. The federal government offers a Income-Based Repayment (IBR) plans for those who have a high amount of debt relative to income.

Who Qualifies for IBR?

In order to take advantage of this program, you need to have some level of financial hardship. The government information on IBR views partial financial hardship in the following terms:

[T]he montly amount you would be required to pay on your IBR-eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to pay under IBR.

Basically, you use the calculator provided by the government [7] to compare what you (and your spouse, if you have one) would normally pay in a standard plan, as compared to what you would pay with an income-based solution. By answering the information on the calculator, you can quickly see whether or not you quality.

The federal loans that are eligible for IBR include Direct subsidized and unsubsidized loans, as well as Direct PLUS lonas made to graduate and professional students. All Federal Stafford loans, FEEL PLUS loans made to graduate or professional students, as well as FEEL Consolidation Loans (without underlying PLUS to parents) are also eligible.

It’s important to note that PLUS loans to parents and FEEL Consolidation Loans that include PLUS loans to parents are not eligible for IBR. Private student loans are also ineligible.

You are required to submit income documentation each year in order to ensure that you still qualify for IBR, and to re-figure your monthly payments. As your income rises, you are phased out of IBR.

What are the Advantages of IBR?

IBR is designed to help graduates avoid defaulting on the student debt — something that can have very serious consequences. Payments are based on your income and the size of your family. Your payments are connected to what you earn, limiting your requirement to 15% of your discretionary income. Additionally, there are situations in which your interest might be subsidized by the government, and there are limits on how much interest can be capitalized.

If you continue to pay, and if you meet certain qualifications, if you haven’t paid off your student loans under IBR, the remainder might be forgiven after 25 years (you might owe taxes on the amount forgiven). If you work full-time for a public service organization, and make all of your payments on time for 10 years, you might be eligible to have your debt forgiven after that time period. With the right planning, IBR, combined with the right job, can result in a decent portion of your student loans being written off.

It’s important to understand, though, that you might end up paying more in interest over time. The point of IBR is to spread out your payments over 25 years, rather than requiring repayment in 10 years. As a result, the longer time period can result in higher interest overall.

Carefully consider Income-Based Repayment by visiting the Department of Education’s page on IBR [8].

(Photo: jameskm03 [9])