Is Income-Based Repayment (IBR) right for me?
Income-Based Repayment (IBR) is best for borrowers who don’t qualify for PAYE and have high student debt relative to their income.
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Robyn Conti has been helping educate consumers and financial professionals about investing, retirement planning, and personal finance since 1998. Her articles have run in publications including Forbes Advisor, The Motley Fool, and Robb Report, among others.
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Renee Fleck is a student loans editor with over five years of experience in digital content editing. Her work has been featured in Fast Company, Morning Brew, and Sidebar.io, among other online publications. She is fluent in Spanish and French and enjoys traveling to new places.
Updated April 12, 2024, 4:51 PM EDT
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As of January 2024, the Biden-Harris Administration has provided over $45 billion in income-driven repayment (IDR) relief to over 930,500 student loan borrowers. If you have student debt that significantly outweighs your income, the Income-Based Repayment (IBR) plan could be your most affordable path to loan forgiveness. Find out if you qualify for IBR and whether it’s the right income-driven plan for you.
What is Income-Based Repayment (IBR)?
Income-Based Repayment (IBR) is one of four income-driven plans offered by the U.S. Department of Education. These plans calculate your monthly student loan payments based on your annual income and family size.
Unlike other income-driven plans, IBR’s terms vary based on the time you borrowed. Loans taken out after July 1, 2014, set your monthly payments at 10% of your discretionary income over a 20-year repayment period. For loans taken out before this date, payments are set at 15% of your discretionary income over 25 years. Any remaining loan balance is forgiven at the end of the repayment period.
Good to know:
Under IBR, discretionary income is defined as the difference between your household income and 150% of the federal poverty guideline for your state and family size.
The IBR plan also comes with an income cap. In order to qualify, your monthly payments on IBR need to be lower than what you pay (or would pay) on the 10-year Standard Repayment plan. You’ll generally meet this requirement if your student debt is significantly higher than your annual salary.
Eligible loans for IBR include most federal Direct Loans and Federal Family Education Loans (FFEL), except for loans made to parents, and consolidated loans that include parent loans.
IBR key facts
Is IBR right for me?
IBR may be the right income-driven repayment plan for you if:
- You don’t expect your income to increase: To qualify for IBR, you’ll need to demonstrate partial financial hardship each year that you certify. This means a substantial increase in income could disqualify you from IBR benefits.
- You don’t qualify for PAYE: Although Pay As You Earn (PAYE) and IBR offer similar benefits, PAYE is usually more favorable because it limits the amount of unpaid interest that can be added to your principal loan balance.
- You have FFEL program student loans: Most FFEL loans — except those made to parents — qualify for IBR, unlike other income-driven plans that require FFEL loans to be consolidated.
- Your spouse also has federal student debt: If you’re married and file taxes jointly, the IBR plan prorates your monthly payments based on your share of the combined debt, potentially lowering payments further.
Pros of IBR
There are several advantages to the Income-Based Repayment plan, including:
- More manageable payments: Your payments are calculated based on income and family size. Monthly payments are set at 10% or 15% of your discretionary income, depending on when you borrowed.
- Forgiveness potential: Your remaining loan balance is forgiven after 20 or 25 years of payments, depending on when you received your loans.
- Potential interest subsidy: If you have subsidized loans, the government will cover any unpaid interest that accrues on your loan for up to three years after enrolling in IBR.
Cons of IBR
The IBR program also has a few downsides:
- You might pay more interest: IBR’s repayment terms are longer than the 10-year Standard Repayment plan, which means you’ll likely pay more interest over the life of your loan.
- Parent borrowers aren’t eligible: Parent PLUS loans and FFEL PLUS loans made to parents are not eligible for IBR, even if consolidated.
- You may owe income tax on the forgiven balance: Starting in 2025, your forgiven loan balance under all IDR plans will count as taxable income.
Tip:
Use Federal Student Aid’s loan simulator tool to estimate what your monthly IBR payments could look like and see if it's right for you.
How to apply for the IBR plan
The fastest and simplest way to apply for the IBR plan is online. You’ll need your Federal Student Aid (FSA) ID, personal information, your spouse’s information (if applicable), and household income to complete the application. If you’re unable to fill out the application online, you can use this form instead.
Recertify for IBR each year
Your payment under the IBR plan is recalculated each year based on your current income and family size. To remain eligible for IBR, you must recertify your income and family size annually. Your loan servicer should send you a reminder before the deadline.
If you have Direct Loans, you can consent to have your latest tax information automatically pulled into your IBR application to simplify the recertification process. FFEL loan holders, on the other hand, will have to upload income documentation and have their loan servicer calculate their adjusted gross income.
If you miss the certification deadline, your loan servicer will default your payment to what it would be under the 10-year Standard Repayment plan, and it’ll be based on your original loan balance when you qualified for IBR. Any unpaid interest will be capitalized and added to the loan balance, increasing the total amount you owe.
Compare IBR to other income-driven plans
IBR isn’t your only repayment option. The federal government offers three other income-driven plans that also offer paths to forgiveness.
Related: SAVE plan: A borrower’s guide to repayment
Alternatives to lower monthly payments
If you want to lower your monthly federal student loan payments but an income-driven plan doesn’t make sense for you, consider the following alternatives:
- Extended Repayment plan: Eligible borrowers can stretch their repayment period up to 25 years under this plan to make monthly payments more manageable.
- Graduated Repayment plan: The graduated plan can be a good option for borrowers who expect their salary to increase over time. Repayment spans 10 years, with payments starting low and increasing every two years.
- Consolidate federal loans: If you have $60,000 or more in outstanding federal student loan debt, consolidating can allow you to extend your repayment period up to 30 years.
- Look into refinancing: Refinancing student loans could save you money by potentially getting you a lower interest rate. However, refinancing federal loans means losing access to benefits like deferment, forbearance, and income-driven repayment.
Keep in mind, extending your repayment period can help make monthly payments more affordable, but it also means you’ll end up paying more interest over the life of your loan.