Is Income-Based Repayment Right for you? | 04.21.10

Posted in Stafford Loan, Student Loans By Student Loan Network Staff

If you are struggling to pay back your student loans, even after a consolidation, you might have wondered what are your options. One plan of attack is to apply for income-based repayment. But is it right for you?

What is income-based repayment? Basically, if your total student loan payments for the year is higher than 15% of your annual income, you can have your loan spread out further and your monthly payments lowered.  So if you are making $35,000 a year, the maximum student loan payments you can make each month should be no higher than $132.91.  If you are married, your eligibility for IBR is based on the combined annual income of you and your spouse. (To find out if your specific income qualifies, peruse our IBR chart here.)

Which of my loans are eligible for IBR? You can use IBR for all federal Stafford loans, GradPLUS loans and federal loans that have previously been consolidated. All private loans, including ParentPLUS  loans, are ineligible. Any loan, private or federal, that is in default will not be eligible for income-based repayment as well.

What are some of the perks of IBR? Well, aside from getting a lower monthly student loan payment, if your IBR payment is less than the monthly interest that accrues on the loan, the government will pay your unpaid interest on  for up to three years. If you are still making IBR payments after 25 years, your debt is forgiven.

Okay, so what’s the downside? Simply put, you will pay more interest for the life of the loan.  The lower monthly payments may help in the short term, but it won’t do nearly as much to pay down your loan balance as a standard monthly payment. That means more interest is added to your loan each month, and it will take far longer to pay it off totally.

Further, you will have to report your income each year to be eligible for IBR. If your income goes up you may lose eligibility and have to go back to a standard repayment plan.

Image credit: National Collegiate Scouting Association on flickr.

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11 Responses to “Is Income-Based Repayment Right for you?”

  1. Madhavi says on May 8, 2010 at 4:46 am:

    good info – i believe it is better to repay as fast as you can as well

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  2. Danielle says on April 30, 2010 at 2:39 pm:


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  3. Laayla says on April 30, 2010 at 6:18 am:

    Very interesting. This will be so useful once I graduate. It's important to know things like this because information like this can help out so much (financially and emotionally!)

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  4. Jen says on April 28, 2010 at 7:50 pm:

    Very informative and good to know

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  5. maira72 says on April 23, 2010 at 9:24 pm:

    intersting thank you

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  6. Lisa says on April 23, 2010 at 5:08 pm:


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  7. dominique says on April 23, 2010 at 8:58 am:

    i can tell my mom about this

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  8. maira72 says on April 22, 2010 at 9:13 pm:


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  9. SNemo says on April 21, 2010 at 11:34 pm:

    Interesting… I've never really heard of this…. I'm not very educated in terms of loans… so its good to read about these sorts of things!

    Reply To This Comment
  10. Lauren says on April 21, 2010 at 4:36 pm:

    I will start paying on my loans while I'm in school, that way I pay less interest. I did that with a previous loan, and I paid thousands less in interest.

    Reply To This Comment
  11. Betty says on April 21, 2010 at 4:04 pm:

    This is a great thing to know.
    Makes me reel better about paying back what I've borrowed.

    Reply To This Comment

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