Income-based repayment & Public service loan forgiveness

Income-Based Repayment Program (IBR)

On July 1, 2009, the federal government introduced a new way to repay student loans. Under the IBR program, monthly loan payments for eligible borrowers will be capped based on income and family size. After 25 years of "qualifying" to payments, all remaining debt will be forgiven.

IBR is meant to help borrowers who have difficulty making monthly payments under the Standard 10-year repayment plan.

Loans eligible for IBR

You can tap into the IBR program if you have loans issued under:

The Federal Family Education Loan (FFEL) program
The Direct Loan program
The Perkins Loan program, but only if you consolidate your Perkins Loan with your FFEL or Direct Loan

Eligible loans under both FFEL and Direct include Stafford, Grad Plus, and federal Consolidation loans.

Loans not eligible for IBR

Loans excluded from IBR eligibility include:

PLUS loans made to your parent(s)
Consolidation loans that include Parent PLUS loans
Private (alternative) loans
Loans not guaranteed by the federal government

How IBR can reduce your monthly payments

IBR uses a formula to compare your debt to your income. If your monthly payments would take more than 15% of your earnings above 150% of the poverty level for your household size, you may be eligible.

If your income is below 150% of the poverty level for your household size, you won’t have to make any monthly payments.
If your income is above 150%, you will pay 15% of the amount that exceeds 150% of the poverty level.

For example:

If your annual income is $20,000 and you live alone, your monthly payment will be reduced from about $230 per month under the Standard (10-year) payment plan to $56 under IBR
If your annual income is $20,000 and you have two persons in your household, no monthly payment will be required.
If your annual income is $40,000 and you have two persons in your household, your monthly payment will be reduced from about $460 per month under the Standard payment plan to $272 under IBR.

Public Service Loan Forgiveness

This new program forgives all remaining debt in the Direct Loan program after 10 years of payments under the Standard (10-year) or alternative repayment plans, including IBR. The program is open to borrowers who take jobs in government and nonprofit 501(c)(3) organizations.

Only payments made after Oct. 1, 2007 count towards the 10 years. If your loans are in the FFEL program, you may be able to switch them to the Direct Loan program.