Income Based Repayment is your New Best Friend | 03.22.10

Posted in FAFSA, Repayment, Student Loans By Evan Jacobs

In our financial aid forum, a lot of the questions involve worries about student loan repayment and avoiding bankruptcy. If you have a lot of money tied up in federal student loans, a fairly new repayment option called “Income Based Repayment” is amazingly flexible and affordable for individuals with near-zero, low income and/or low-income families.

How it works:

Income Based Repayment works based off of a formula that looks at your annual income and household size to figure out how burdensome the payments are in relation to your other living expenses. If you qualify, your payments are drastically reduced, and scaled down to as little as $0.

$0 is the extreme, and based on 2009′s numbers, you would need to make $15,000 or less to get a zero dollar monthly payment as a single individual. If you are interested in seeing the income chart to guesstimate your payments under IBR, check out our Income Based Repayment webpage.

Generally, if your monthly payments under IBR are shown to be lower than they would be under another repayment plan, that qualifies you. In addition, your chances of being approved for IBR are greatly improved if you have dependents or have a household size of two or more people.

What else should I know?

There is one more piece of the puzzle that makes Income Based Repayment even better than it already sounds: loan forgiveness. After 25 years, if you have not missed any payments and have a good history on your loan, the government will cancel it. That means it’s gone — done — paid for and off your credit forever.

Kind of crazy, right? This makes IBR truly an amazing repayment option for those who are pursuing advanced degrees that cost a ton of money. Even if you are just graduating from an undergraduate college, IBR provides with you a safety net if you do not get a job right away. Although the economy is slowly returning to normal, jobs still can be difficult to acquire; IBR can effectively give you an unlimited grace period on your federal loans until you start making money at a new job.

Image Credit to VMG  2010 on Flickr

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One Response to “Income Based Repayment is your New Best Friend”

  1. Jaime says on August 16, 2010 at 2:59 am:

    Is it true that IBR takes into account borrowers' living expenses in determining monthly repayment amount? If so, what would they consider or include as living expenses?

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