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Income-Based Repayment Option for Student Loan Debt

Founded in 1951, the National Foundation for Credit Counseling is the largest serving nonprofit financial counseling organization. Find various topics in this blog, including personal finance, credit counseling, housing, budgeting and student loan help. Click here to speak with an NFCC-certified Consumer Credit Counselor.

DrewKesskerBy Drew Kessler

You’ve done it. After years of hard work, you’ve finally earned your degree and graduated from college. What’s next? Finding a job and a place to live, budgeting for basic living expenses, and hopefully starting to put money away for the future. For about two-thirds of college graduates, paying off student loan debt is an additional priority. The average graduate leaves school with around $26,000 in student loan debt, a figure that continues to climb each year. While most college graduates may share similar student loan obligations, not all reach the same level of financial success after graduation, and a growing number of borrowers fall behind on their loan payments.

There are options available for struggling borrowers, yet whether due to lack of awareness, or confusion over how to apply, the number of borrowers enrolled in these programs remains relatively low. One such program is Income-Based Repayment (IBR), which calculates payments based on income and family size, rather than the amount of your student loan debt.

IBR has been available to borrowers since 2009, and most types of federal loans are eligible for enrollment in the program, with the primary exception of PLUS loans that are made to parents. Private loans don’t qualify for IBR.

Borrowers experiencing a partial financial hardship who enroll in IBR can benefit from:

  • Payments set at 15% of their discretionary income
  • Student loan forgiveness on any remaining balance after 25 years of qualifying payments

While IBR allows for loan forgiveness after 25 years of timely payments, it’s unlikely that most borrowers will remain on IBR for the full 25 years. One drawback to IBR, or any plan that extends your repayment term, is that you will pay more interest the longer it takes you to pay off your loan. Still, IBR is a great resource for borrowers who need to lower their payments until they’re in a position where they can afford standard payments.

  • Loan forgiveness after 10 years of working in public service.

If borrowers enrolled in IBR work full-time in public service positions, they can receive loan forgiveness through the Public Service Loan Forgiveness Program.

To see if you qualify for IBR, check out the Department of Education’s IBR Calculator. You’ll need to know your adjusted gross income, and the balance of your federal student loan debt. If you don’t know how much you owe, you can visit the National Student Loan Data System (NSLDS) to view your federal student loans.

If you do qualify, the Department of Education has recently simplified the application process, allowing borrowers to apply for IBR online.

Drew Kessler is Vice President of Marketing & Communications with the National Foundation for Credit Counseling.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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