Federal Student Loan Repayment

Federal Student Loan Repayment- The Income Based Repayment Plan (IBR Plan)

Several plans have been formulated to assist student loan borrowers with low incomes. In fact some of these were conceived to encourage people to go into public service careers. This can include doctors and nurses who work in federal medical programs, lawyers working as public defenders, and many other workers in public service fields. If you have a student debt consolidation loan, it is very easy to move into one of these repayment plans if your situation

warrants it. Just contact your lender and tell them you are interested. This discussion pertains to federal student loans, not private loans. Private student loans are governed by the specific loan agreement you signed when taking out the loan. Let’s now discuss in some detail the Income Based Repayment Plan (IBR Plan)

The Income Based Repayment Plan (IBR Plan)

This is a new student loan repayment option that became available on July 1, 2009. It is intended to encourage people to go into public service work. If a borrower completes 10 years of public service work and makes 120 payments on the Direct Loans for which forgiveness is requested the balance of the loan principle after that can be dismissed. A Direct Loan is a federal student loan that is made directly through a school. It can be either subsidized (interest paid during school) or unsubsidized. Parent Plus loans or any consolidation loan that includes a Parent Plus loan is not eligible for the IBR Plan.

Having the balance of a student loan dismissed after 10 years is a huge benefit and can save a person thousands of dollars. Just be aware that the amount forgiven is taxed as ordinary income in that year. So you will probably pay higher taxes, but you can still save yourself thousands of dollars.

For this type of loan monthly payments are capped at 15% of your discretionary income, which is the difference between your adjusted gross income (AGI) and 150% of the poverty line. The latter depends on your family size and the state you reside in. There is no minimum monthly payment. Even if you don’t work in public service, the balance of the loan can be forgiven after 25 years. Once again, the amount forgiven is considered taxable income in the year this occurs.

This plan will normally result in the lowest monthly payment for many borrowers with low incomes. A repayment calculator can be found at www.finaid.org/calculators/ibr.phtml.

A new provision in this plan lets a married borrower count only his or her AGI and student loan debt in the calculation if they file their income tax as “married filing separately”.

Although this type of repayment plan is not for everyone, if you are a person attracted by a career in public service, it may be your best option to deal with federal student loan repayment.