Income-Based Repayment (IBR) Plan for Federal Student Loans

For many college graduates, finding a way to pay off student loans is just as difficult as finding a job right out of school.

The average amount that borrowers owed on their student loans in 2010 was $25,250; by 2024 that figure increased to $38,375. As debt balances grow, it’s no wonder that 25% of debtors under 40 say they’re struggling to get by.

As a federal borrower, you’ll have to be proactive if you need help covering your student loan payments. Unless you enroll for an IDR plan, you’ll automatically have a 10-year repayment term, and those plans aren’t always affordable.

If you owe more in student loans than you earn each year, one option worth considering is the Income-Based Repayment (IBR) plan.

What Is Income-Based Repayment (IBR)?

The Income-Based Repayment (IBR) plan is an income-driven repayment plan that can lead to lower student loan payments and partial loan forgiveness for federal student loans.

For people who qualify, this plan gives you financial help by lowering your payments to either 10% or 15% of your discretionary income (that’s the money you have left after you cover necessities).

If you go on an IBR plan, the number of payments you need to make depends on when you took out your loan:

• Before July 1, 2014: You’ll have a 25-year repayment period.
• After July 1, 2014: You’ll have a 20-year repayment period.

If your loan is in good standing at the end of the period, the rest of your balance will be forgiven! Just note that you may have to pay taxes on the forgiven amount.

Of course, the ED has other options for students struggling to repay their loans, too. They include loan consolidation, forbearance, deferment and loan forgiveness. There are also other IDR plans, including Pay As You Earn (PAYE) and the Income-Contingent Repayment (ICR).

IBR vs. Standard Repayment Plan: Key Differences

When it comes time to pay back your student loans, you’ll automatically be enrolled in the Standard Repayment Plan, unless you sign up for the IBR or one of the other four income-driven plans.

What’s the difference between IBR and a Standard Repayment Plan? When it comes to your monthly payments, the difference can be huge.

For example, if your income is $25,000 a year and you have the average student loan debt of $38,375, at a rate of 6.53% your standard monthly payment would be $436 a month for 10 years. By comparison, you would pay just $58 a month under the Income-Based Repayment plan.

Here’s an overview of the key differences between standard repayment and the IBR plan:

Just know that not everyone qualifies for IBR. You must be able to demonstrate your need for assistance by providing documented financial information when you fill out the application.

Benefits of Income-Based Repayment (IBR)

The most obvious advantage of going on an IBR plan is lower student loan payments.

For eligible borrowers who complete school and aren’t earning much, you don’t have to go broke just to keep up with your loan. IBR can bring down your debt payment and keep your budget on track.

But that’s not the only reason to consider applying for an IBR plan. Here’s an overview of the benefits of using the Income-Based Repayment plan:

• Lower payments: With ICR, your monthly payment could end up being higher than what you’d pay with the 10-year Standard Repayment Plan. But with IBR or PAYE, even if your income increases, you will never pay more than with the standard repayment.
• Help in times of need: Payments are calculated based on your current income and family size, and they’re re-evaluated every year. So, if you lose your job or your family grows, your payments can go down.
• Eventual loan forgiveness: After either 20 or 25 years, you become eligible to have your remaining loan balance forgiven. (The forgiven balance is considered taxable income in most cases). If you qualify for PSLF, your loan can be forgiven in as little as 10 years.
• Flexibility to switch plans: If your income increases and you want to pay your loan off faster, you have the flexibility to change plans.
• Some interest payments are covered: If your monthly payment is too low to cover all of the interest on subsidized loans, the government will pay the difference for up to three years. For example, if your monthly interest charge is $30 and your monthly payment only covers $10 in interest, the government will pay the remaining $20.

Disadvantages of Income-Based Repayment

The IBR plan is a huge help for many borrowers who are struggling financially, but it also has its drawbacks. If you’re not aware of them up front, you could end up being blindsided.

What’s the biggest disadvantage of IBR plans? If your income is really low, there’s a chance your monthly loan payments won’t cover the interest charges you accrue each month. When that happens, you’ll have negative amortization, meaning your balance will go up even if you make payments.

Even with negative amortization, you can still qualify for loan forgiveness after 20 or 25 years. But there’s another downside. In most cases, you’ll have to pay income taxes on the amount that’s forgiven. The more unpaid interest you accrue, the higher the tax bill will be.

Here are some other disadvantages of the Income-Based Repayment plan:

• Since the plan stretches out your payments over a longer period, you’ll accrue more interest than you would on a Standard Repayment Plan.
• Payments are recalculated every year, so if your income increases, your payment will rise.
• The program doesn’t apply to private loans and to some federal loans for parents.
• If you miss the annual recertification, your unpaid interest will be added to your loan balance and your monthly payment will increase.

Income-Based Repayment Plan Eligibility

Your eligibility for an IBR plan depends on several factors related to financial need. To determine if you need assistance, your loan servicer will consider your income, your spouse’s income (if you’re married and file a joint tax return), the amount of debt you owe and your family size.

On top of that, your loan type plays a role in eligibility. These are the types of loans that qualify for IBR plans:

• Direct Stafford
• Direct Grad PLUS
• Direct Consolidation Loans that didn’t repay Parent PLUS loans
• FFEL Stafford
• FFEL Grad PLUS
• FFEL Consolidation Loans that didn’t repay Parent PLUS Loans
• Federal Perkins Loans (if consolidated)

IBR Payment Calculation Examples

Wondering how much your payment will be on an IBR plan? The amount you’ll pay is based on your specific situation, but we put together estimated monthly student loan payments for a borrower facing the following circumstances:

• $38,375 in undergraduate student loan debt (that’s the average amount owed in 2024)
• 25-year repayment (which applies to loans borrowed after July 1, 2014)
• 6% interest rate
• Not legally married

IBR Sample Payments Based on Income and Family Size

Source: U.S. Department of Education

How to Apply for Income-Based Repayment

The process of applying for all IDR plans is the same: You can submit your IDR plan request online and it takes most people around 10 minutes to complete the process. Alternatively, you can open the loan repayment tab on the Federal Student Aid Forms page and download the application form there.

Here are the steps to submit your IBR plan request online:

1. Log in or create an account at StudentAid.gov.
2. Confirm your contact information if it’s already on file.
3. Review your loan information to see which loans are eligible for IBR.
4. Confirm or update your personal information.
5. Transfer or enter your financial information. You can do this by giving the ED permission to import it, or by manually entering details and uploading any documents requested.
6. Review your current payment plan and, if you believe there’s a better option, choose the plan you want to switch to. Note that, unlike in the past, the application no longer gives you a recommended plan.
7. Agree to the terms and conditions.
8. Sign and submit the application.

IBR vs. Other Income-Driven Repayment Plans

IBR is just one of the income-driven payment plans available through the Department of Education. Each one has something unique to offer you as a borrower, but here are the ways the IBR plan is different from the other student loan payment options:

• Payment cap: While ICR plan payments can be as high as 20% of your income, IBR plans are capped at 10% to 15%.
• Switching plans: If you’re on an IBR plan and you want to switch to another plan, you’ll have to switch to a Standard Repayment plan and may have to make at least one payment first.
• Cancellation timeline: With ICR, you won’t be able to get your balance cancelled for 25 years. With the other plans, including IBR, you might qualify at 20 years.
• Eligible loan types: Each plan is exclusive to certain loan types. For IBR, most FFEL and direct loans are accepted (not including Parent PLUS and Consolidation loans used to pay Parent PLUS).

As with other payment plans, you’ll have to recertify for IBR every year in order to stay on the plan.

Public Service Loan Forgiveness (PSLF) and IBR

Twenty to 25 years is a long time to carry debt. For some borrowers, there’s a way to shorten the timeline.

With Public Student Loan Forgiveness, qualified borrowers who work in public service roles have their balances forgiven after 10 years. If you’re on an IBR plan and you qualify for PSLF, you will significantly shorten your repayment timeline.

These are the conditions you have to meet to qualify for forgiveness under PSLF:

• You’re in an eligible, full-time government or nonprofit role
• You have a Direct Loan, or you consolidate your federal student loan to a Direct Loan.
• You make 120 qualifying payments (months spent on certain deferment or forbearance plans can be counted).

To help ensure the Department of Education gives you credit for your public service, make sure you submit a PSLF form every year and any time you switch jobs.

FAQs About Income-Based Repayment

Student loan repayment plans are complicated, so it’s natural to have a lot of questions about this topic. We’ve answered the most common questions about IBR plans, but you can also submit questions you’d like us to address in the future.

How can I estimate my payments?

You can use the Department of Education’s Loan Simulator to estimate your payments on different income-driven repayment plans. Note that the results are only estimates and may not be 100% accurate.

How long does it take to process my application?

You can probably expect delays in the processing of your income-driven repayment application. If you can’t afford your payment while waiting for a response, contact your loan servicer and ask for a processing forbearance to pause your payments.

If processing takes more than 60 days, your loans should automatically be put into general forbearance. Unfortunately, if you receive a bill or other communication stating a payment is due, you’ll have to remind your servicer.

Will my IBR student loan be forgiven?

If you took out your loan before July 1, 2024, the balance you owe will be forgiven after 25 years of payments on an IBR plan. If you took out your loan after that date, you’ll be eligible for forgiveness after 20 years of IBR plan payments.