Income Based Repayment Options

Federal student loan income based repayment makes federal student loan payments more affordable

Income based repayment plans offer financially strapped individuals the opportunity to reduce the amount of their monthly payments for federal student debt. It caps monthly repayment amounts at a percentage of discretionary income. Specifically, the repayment formula defines discretionary income as the adjusted gross income minus one and a half times the poverty rate for the family's size. Federal student loans for undergraduate or graduate education as well as professional job training are eligible for income based repayment or IBR. However, in order to take advantage of this form of repayment the borrower cannot be in default.

Who's eligible for income based repayment plans?

Income based repayment options for federal student loans are a great option for students fresh out of college who may have limited income to repay their loans and don't want to risk defaulting on their payments. In order to be eligible you must fall under one of the following conditions:

  • You have a federal student loan, taken out by parents for dependent children
  • You have consolidation loans under the Federal Direct Loan program
  • You're a part of Federal Family Education Loan (FFEL) programs
  • You have federal student loan debt that is high relative to your income and family size

For example, if your family of five has an adjusted gross income of $45,000, under income based repayment, the government would cap your monthly contributions so you only pay $72 a month. A family of two with an adjusted gross income of $60,000 would pay $474 per month.

The rules governing married couples who each have federal student loan debt are somewhat more complicated, but generally income based repayment plans will total both federal student debt and income for couples who file taxes jointly. Check with your lender or federal student loan servicer for details. You should also go online or contact your federal student loan servicer for a personalized IBR Calculation.

Benefits of IBR student loans

As a young borrower, an income based repayment plan offers many benefits. You pay just what you can afford, which means making smaller monthly payments in the early years of your career when your income is lower. Then, you slowly ramp up payments as your income increases.

Remember, however, taking advantage of IBR plans may mean adding to the typical 10-year repayment period for federal student loans. In the end, this increases the total interest paid over the life of those loans. On the other hand, if you repay your loans under an IBR plan for 25 years, your remaining debt will be cancelled, though it will be taxed as income. Also, if your monthly payments under the IBR repayment plan do not cover your interest, the government may repay the interest due on your subsidized federal Stafford loans for the first three years. This only applies to subsidized federal Stafford Loans, and after three years interest will be added into the total amount you owe just as it would be for all other federal loans from the beginning.

To remain eligible for this program, you must submit annual documentation to your loan servicer to verify your family size and family income. Otherwise, the amount you're required to repay on your federal student loans will revert to what was owed before you took advantage of income based repayment.

Find more information on student loan income based repayment

At Citizens Bank, we understand that the student loan process can be challenging, for parents as well as students. That's why we have included tips and suggestions for managing student loans. If you still have a question you want answered, simply contact one of our helpful student loan specialists at 1-888-411-0266.

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