New Federal Student Loan Repayment Plan

Posted by David R. Wetzel Jul 14, 2009

US Department of Education has announced its new repayment plan called - Income Based Repayment (IBR) for the major types of federal loans made to students. Under IBR, your required monthly payment is capped at an amount that is intended to be affordable based on your income and family size.

What federal student loans are eligible to be repaid under an IBR plan?

Any Stafford, Grad PLUS or Consolidation loan made under either the Direct Loan or FFEL program is eligible for repayment under IBR, EXCEPT loans that are currently in default, parent PLUS Loans, or consolidation loans that repaid a parent PLUS Loan. The loans can be new or old, and for any type of education (undergraduate, graduate, professional, job training).

Who is eligible for Income Based Repayment?

You may enter IBR if your federal student loan debt is high relative to your income and family size. Consideration is based on your income, family size, and state of residence to calculate your IBR monthly payment amount. If that amount is lower than the monthly payment under a 10-year standard repayment plan, then you are eligible to repay your loans under IBR.

What are the benefits of IBR?

Interest Payment Benefit – If your monthly IBR payment does not cover the monthly interest that accrues on the loans, the government will pay your unpaid interest on Subsidized Stafford Loans (either Direct Loan or FFEL) for up to three consecutive years from when you first enter IBR repayment. After three years, and for all the other types of loans, interest that accrues will be capitalized (added to the loan principal on which future interest is calculated) when the borrower no longer is eligible for an IBR repayment amount.)

25 Year Cancellation Plan – If you repay under the IBR plan for 25 years and meet certain other requirements, any remaining balance will be cancelled.

What are the disadvantages of IBR?

You May Pay More Interest – The faster you repay your loans, the less interest you pay. Because a reduced payment in IBR generally extends your repayment period, you may pay more total interest over the life of the loan.

Resource

US Department of Education Income Based Repayment Plan