Blog Archives

Income Based Repayment Plan – What It Is & How To Qualify

March 25, 2012

Income Based Repayment Plan

Income Based Repayment Plan

The income based repayment plan is one of the best things to ever happen in the student loan world, offering individuals with student loan debt a chance to essential pay a monthly payment that is dicated by how much you earn. Before we jump into all of what it consists of, it should be known that IBR can only be used on federal student loans like Stafford, Perkins, PLUS and FFEL Loans among others and isn’t currently available for private student loans. The student loans monthly payment is usually around 15 % of what your monthly income equates to, which those who do not make anything and or unemployed can have payments as low as $5. Being that the standard repayment period for federal student loans is 10 years and the extended repayment being 12 years, this income based repayment plan can offer one the opportunity to extended their repayment period by a significant amount of time, as long as it takes to pay back their student loans off of 15 % of what they earn.

Now the entire income based repayment program lasts a maximum of 25 years, which if one has failed to pay off their student loans during that time through the income based repayment plan, then the debt left will be wiped away but the individual will be charged for it in the form of taxible income. So to give you a feel for what this means, say you have $5000 of debt left after your repayment term has concluded, then you will be taxed as if you made that $5000 and have to pay it.

Now the income based repayment plan was created for various reasons but the main reasons where to assist people in avoiding student loan bankruptcy and student loan default as well as to assist those who have just started their search for a job but can’t find one, resulting in one not being able to afford their monthly payments for a very good reason.

It should also be known that if ones income based repayment plan payment eaquates to less than what would cover just the interest alone, then the governement would actually pay it each month.

Qualifying For The Income Based Repayment Plan

Qualification for IBR is ultimately based off of what you earn each month as well as other aspects, one of the main ones being how big your family is. These are the two major factors that are considered when you submit your application for income based repayment program. The higher ones debt and the lower ones income or one of the two, the higher the chances are of that individual getting becoming eligible. If in fact the income based repayment amount equates to more than what they are currently paying, then one will just continue to repay their loans with their original payment.

Any one with federal student loan debt can apply for the income based repayment program which if their application is denied then their repayment plan will revert back to the standard repayment program .