The Income-Based Repayment Plan

The Income-Based Repayment Plan ("IBR") was created in 2009 as a (hopefully) more successful plan than the Income-Contingent Repayment Plan ("ICR") was. These plans are complicated, but I'm going to try to simplify the topic with some bullet point.

• The IBR applies to Direct Loans and government-guaranteed FFEL student loans, not private student loans, Perkins Loans or PLUS Loans.
• You cannot be in default and get the IBR. However, after you get out of student loan default, you can use the IBR.
• You must be eligible for the IBR. What is required is "Partial Financial Hardship." The formula for determining this is hard to follow, but it's this: You take 150 percent of the poverty guidelines for state and family size. You compare this with your adjusted gross income. You take the difference between the two. You take 15 percent of this difference. If your annual student payments under the standard 10-year loan repayment plan exceed that 15 percent difference, you can do the IBR. Wheww!
• Payment: The 15 percent difference is also the key for determining your payment under the IBR. You just divide it by 12 and that's your monthly payment.
• Debt Forgiveness: After 25 years in the IBR, your debt is forgiven. However, the amount forgiven is taxable to you in the year of the forgiveness. There are sometimes defenses to this, like the insolvency exception.