My Degree Isn’t Earning Me Money, Should I Try Income-Based Repayment?
If your income is less than expected and your student loans are a burden, you might want to consider Income-Based Repayment (IBR).
Do you find yourself working hard, yet struggling with student loan repayment? One of the options that may ease your financial burden is Income-Based Repayment (IBR).
If you’re still at the beginning of your professional career with high debt and low earnings, an IBR plan will keep your payments within reason. The amount of money you owe per month is limited based on your income and family size.
IBR will curb your monthly payments so you won’t have to give as much as you would under a normal 10-year student loan repayment plan
The IBR student loan repayment program is available to almost all students who took out federal loans to pay for education, including direct and guaranteed programs.
In order to see if you are eligible, use this IBR calculator. The calculator does not guarantee results, but it will give you an accurate estimate.
How Monthly Payments Calculated for IBR?
Income-Based Repayment uses a sliding scale involving family size and Adjusted Gross Income (AGI). Your annual payment amount can be up to 15 percent of your AGI, which is 150 percent of the current poverty level. This number is divided by 12, which will give you an estimate for your monthly amounts. As a rough estimate, you can expect your payment to be less than 10 percent of your total AGI.
Pros and Cons of Income-Based Repayment Plans
IBR will curb your monthly payments so you won’t have to give as much as you would under a normal 10-year student loan repayment plan. If your calculated monthly payment is not enough to cover interest, the government will cover the unpaid interest for up to three years once you start your IBR plan.
Income-Based Repayment falls under the Public Service Loan Forgiveness program (PSLF). If you take a job in public service and make 120 monthly payments, the remaining balance of your student loans may be erased. In general, jobs that qualify for PSLF include any government jobs, service in AmeriCorps and Peace Corps, and any nonprofit organization. You can visit the Department of Education’s website to get a better feel for the types of jobs that fall under this classification.
For those who aren’t employed in public service, your balance may be erased if you have made payments for 25 years.
Keep in mind, however, that because your IBR payments are likely to be less than other student loan repayment programs, you’ll accrue more interest over time (as mentioned, only the first three years of interest are covered by the government). You’ll have smaller monthly payments, but the total amount you owe will increase as more years pass.
People Who Read This Article Also Read:
Should You Consolidate Your College Loans?
10 Facts About Repaying College Loans
How to Handle Problems Repaying College Loans
Choosing a Federal Repayment Plan
What Should I Do if I Can’t Make My Student Loan Payments?
Student Loan Forgiveness