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What is Income-Based Repayment (IBR)?

Income-Based Repayment (IBR) is a repayment plan that adjusts your monthly student loan payment based on your income and family size. It helps make your payments more affordable if you’re struggling financially.

Key Features of IBR

  • Monthly Payment: Your payment is set to a percentage of your monthly income (usually 10% or 15% depending on when you took out your loans).
  • Payment Amount: Payments are lower than they would be under a standard repayment plan because they are based on your income.
  • Loan Forgiveness: After 20 or 25 years of qualifying payments, any remaining loan balance may be forgiven (the forgiveness amount may be taxable).

How It Works

  • Step 1: Your payment is calculated based on your income and family size.
  • Step 2: The goal is to make your payments affordable — typically no more than 10% or 15% of your discretionary income.
  • Step 3: Every year, you’ll need to update your income and family size information with your loan servicer so they can recalculate your payment.
  • Step 4: After 20 or 25 years of payments, any remaining balance may be forgiven.

Eligibility Requirements

  • Federal Loans: You must have federal student loans (Direct Loans, Stafford Loans, etc.) to apply for IBR.
  • Income: Your income must be low enough that your monthly payment under IBR is less than what it would be under the standard 10-year repayment plan.
  • Family Size: Your family size is also considered when calculating your payment.

Benefits of IBR

  • Lower Payments: Payments are based on your income, so they are more affordable if you’re earning less.
  • Loan Forgiveness: After 20 or 25 years of qualifying payments, the remaining loan balance can be forgiven.
  • Flexible: If your income changes, your payment can be adjusted.

Drawbacks of IBR

  • Longer Repayment Time: It can take 20 or 25 years to pay off your loan, so you might end up paying more in interest.
  • Taxable Forgiveness: If your loan balance is forgiven after 20 or 25 years, you may have to pay taxes on the forgiven amount.
  • Annual Updates: You must update your income and family size every year, or your payment could increase.

How to Apply for IBR

  1. Check eligibility: Make sure your loans are federal loans and that you meet the income requirements.
  2. Apply online: Go to the StudentAid.gov website and apply for IBR through your loan servicer.
  3. Provide income information: Submit your most recent tax return or proof of income.
  4. Update annually: Every year, provide updated income and family size info to continue on the plan.