Payments Based on Income, Not Debt
Income-based repayment is similar to "income-contingent repayment" (ICR), but with some key differences.
• First and foremost, IBR is available to more grads. Income-contingent repayment is only available to borrowers in the direct loan program, while income-based repayment is available in both
the federally-guaranteed student loan program and the direct loan
• IBR uses a smaller percentage of discretionary income and a smaller definition of discretionary income -- that means they're taking a smaller chunk out of the cash you have left over after your other bills are paid. In fact, IBR payments will be as much as 30% to 50% lower than ICR payments.
• Borrowers do not have to consolidate their loans to get access to this plan.
With IBR, you won't have to shell out any more than 15% of your discretionary income in loan payments.* For example, if a borrower owed $40,000 in federal education loans and made $30,000 a year, they'd wind up making the following monthly payments under the different repayment plans: • $171.94 a month with an IBR plan
• $277.63 a month under an extended 25-year repayment plan
• $319.50 a month under income-contingent repayment
• $460.32 a month under standard 10-year repayment plan
Under IBR plans, monthly payments are adjusted annually, based on the prior year's federal income tax returns and any change in the family size. Borrowers can also request mid-year adjustments due to changes in financial circumstances, such as job loss. A borrower who is married to a spouse with high income can file as married filing separate in order to have the monthly payments based on only the borrower's income instead of the combined income. *Discretionary income is defined as the difference between adjusted gross income (AGI) and 150% of the poverty line for the family size. The example above is based on a single borrower who has $40,000 in federal education loans and an AGI of $30,000 a year, taking into account that the 2009 poverty line in the continental US is $10,830 (plus $3,740 for each additional family member), and 150% of that is $16,245.