A 10-Point Primer on Income-Based Repayment (Part 2 of 2)
This is the second part of a two-part series on the Department of Education’s Income-Based Repayment (IBR) program that was implemented in 2009. IBR allows those with federally guaranteed or direct loans to pay the government back based on a portion of their total income if their income is otherwise insufficient to service their loan payments and maintain a decent standard of living.
6). The IBR calculation combines your gross income and family size. The monthly IBR payment rate takes your gross income and subtracts it from the Department of Health and Human Services’ Poverty Guideline times 1.5. Your monthly payment rate is 15% of that, which is then divided into 12 months.
7). Changes in your income and family size will alter your monthly payments, but your monthly payments will never be greater than what they would be if your loans were not in IBR.
8). IBR provides many benefits that typical payment plans do not.
a). IBR decreases monthly loan payments, though in most cases it increases repayment periods and accrued interest.
b). For those who have Subsidized Stafford Loans, whether they are FFEL or Direct Loans, the federal government will pay accrued interest for the first three years you are on IBR.
c). People who work in full-time public service jobs for ten consecutive years can have their student loans completely forgiven if they concurrently enroll in the Public Service Loan Forgiveness Program (also called Income-Contingent Repayment (ICR)). ICR is only available for federal Direct Loans and not older FFEL loans.
d). The greatest benefit IBR provides is full loan forgiveness after 25 years, regardless of occupation. However, the canceled loan does count as income for income tax purposes in the 25th year, but some people may qualify for protection via the “insolvency exception.” There are minor rules that borrowers must meet, such as making timely payments and dutifully reporting income changes to the Department of Education to recalculate the monthly IBR payments.
9). IBR does not apply to private student loans.
10). The good news for people considering graduate or professional education is that they can often fully finance their degrees and living expenses by combining Direct Loans and Grad PLUS loans without borrowing from private lenders and remain eligible for IBR.
IBR provides student debtors with many benefits even though they are often unaware of its existence. An experienced Las Vegas Bankruptcy attorney can help you sort out all of your debt problems in more ways than merely filing bankruptcy.
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