IBR: Income Based Student Loan Repayment

Income Based Repayment IBR

Income based student loan repayment (or IBR) is one of the four income based repayment options that the federal government offers to help borrowers reduce monthly payments on their debt.  IBR is a great option if you don’t qualify for the Pay as You Earn (PAYE) program, and aren’t a good fit for the Revised Pay as You Earn (REPAYE) program.  While only available on certain federal student loans, the program is a wonderful benefit to many lower income borrowers.


What is Income Based Student Loan Repayment?

The income based repayment option (IBR) was originally passed by Congress in 2007, but didn’t become effective until 2009.  It’s objective was to provide a more affordable student loan repayment option to low income borrowers.  The plan improved on the preexisting income contingent repayment option (ICR) by lowering minimum monthly payments from 20% of discretionary income to 15%.

Then in 2014, IBR was revised.  For new borrowers as of July 1st, 2014, monthly minimum payments were reduced from 15% of discretionary income to 10%, and the forgiveness period was shortened from 25 years to 20.

IBR was a significant improvement over the ICR repayment option.  But today, there are two additional income driven repayment options (REPAYE and PAYE) that are a better choice for most borrowers.  But due to PAYE‘s qualification standards and REPAYE’s mandatory inclusion of spousal income, IBR remains a viable option for many others.


How it Works

Like all income based repayment options, IBR gives borrowers an alternative if the minimum monthly payment on the 10 year repayment plan is too much.  For example, let’s say you’re a new graduate and have accumulated $100,000 in federal student loan debt.  You’re about to start work at job that pays $50,000 per year, and the interest rate on your loans is 6%.