We began our deep dive into income-driven plans with PAYE. Now we turn to Income Based Repayment or IBR. Most notably, IBR is split into two different categories — IBR for new borrowers (those who had no federal loan balance when they took out loans after July 1, 2014) and IBR for everybody else — what I call IBR for old borrowers.
1. Percentage of discretionary income owed over the course of the year:
New borrowers: 10%
Old borrowers: 15%
(If you don’t remember how to calculate discretionary income, check out the original post on IDR plans)
2. Eligible loans
Any Direct Loan or FFEL made to an eligible borrower is eligible for the IBR Program except for: (1) a defaulted loan, (2) a Direct PLUS Loan or Federal PLUS Loan made to a parent borrower, (3) or a Direct Consolidation Loan or Federal Consolidation Loan that repaid a Direct PLUS Loan or Federal PLUS Loan made to a parent borrower.
Perkins loans are eligible if consolidated into a Direct Loan. However, take care not to consolidate a Parent loan along with them. Consolidating a Parent loan taints the entire consolidation and makes it ineligible.
3. Eligible borrowers
New Borrower: you’re considered a new borrower if you had no outstanding federal loan balance when you received a Direct Loan on or after July 1, 2014.
Old Borrower: Anybody else who has eligible loans, regardless of when you took them out.
4. Forgiveness opportunities
Much like under PAYE, there is an opportunity to have your balance forgiven, regardless of your employment. This differs by the type of borrower.
New Borrower: 20 years
Old Borrower: 25 years
If you are eligible for Public Service Loan Forgiveness (for which IBR is a qualified plan), your loans could be forgiven after 120 payments or 10 years.
5. How the plan handles spousal income
If you and your spouse file taxes as married filing separately, your servicer will only count your income when calculating your monthly payment. If you are married filing jointly, both of you and your spouses income will be used in calculating monthly payments.
6. Interest benefits
If you have as Direct Subsidized loan or a consolidated loan with a subsidized portion, you may be eligible for some interest benefits for the first three years you are enrolled in the IBR program. In particular, if your monthly payments do not cover the accrued interest, the Department of Education will waive the remaining interest, meaning the interest will not accumulate.