June 25, 2009


A couple weeks ago I wrote about upcoming student loan changes (to take effect on July 1st). One of the important changes that will become available is Income-Based Repayment (IBR), an option that may provide financial relief to over a million federal student loan borrowers (according to estimates by The Project on Student Debt).

What is the new IBR?
A new repayment option for federal student loans. IBR payments will take into consideration factors impacting payment affordability (i.e., family size, income, and state of residence). All Stafford, Grad PLUS, and Federal Consolidation Loans will be eligible for IBR (Loans in default, Parent PLUS Loans, and Consolidation Loans that repaid a Parent PLUS Loan WILL NOT be eligible for IBR).

Calculation of IBR Payments.
While your lender will perform the actual calculations, several calculators exist to assist you in estimating the benefits of IBR. Ultimately, if your payment (given the factors mentioned above - i.e., family size and income) would be lower than a standard repayment (10-year repayment plan), then you will be eligible for IBR. The following calculator is provided by the Department of Education. After the initial determination of eligibility, your payment can be adjusted annually (up or down) based upon changes in family size and income, however, your payment will never exceed the standard monthly payment amount (10-year plan) unless you choose to switch to a different repayment plan. As with any repayment option, it is there to serve you in addressing your repayment needs - you can always switch to a different plan if your needs change or if another option is/becomes more suitable.

(+) IBR may allow you to pay less than other repayment options allowing more monthly discretionary income, adding flexibility to your budget.
(-) Be careful - while smaller payments can provide short-term relief, lower payments can also result in a longer repayment period and higher interest costs.

(+) If you repay for 25 years and meet certain other requirements, the remaining balance will be cancelled.
(-) 25 years is a long time! This could, however, be a potential scenario for an individual with a high level of debt in a 'low-paying' career field.

(+) Public Service Loan Forgiveness after 10 years (not 25). If you work in public service and opt for IBR, your remaining debt (if any) would be cancelled if: (a) Your 120 payments were made in the IBR program. (b) Available only if your payments were made through the Direct Loan program (an option available to you even if you have already consolidated prior with another lender - you can "reconsolidate" with the Dept of Ed (Direct Loan Program) if you'd like). More information is available at the Dept of Ed website.
(-) If there is a negative to this program it's news to me, please share.

More information on Income-Based Repayment is available on the IBR Info Website - http://www.ibrinfo.org ... The site also lists webinar and other free 'events' providing opportunities to learn more about IBR and public loan forgiveness.