Income-Based Repayment, or IBR, is a repayment plan that bases loan repayments on a percentage of the borrower’s discretionary income, as opposed to the amount owed. IBR first became available in mid-2009.
IBR is one of four income-driven repayment plans. The others are income-contingent reimbursement (ICR), pay-as-you-go reimbursement (PAYE) and revised pay-as-you-go reimbursement (REPAYE). IBR is generally a good option for borrowers who are not eligible for PAYE and are concerned about the marriage penalty and the lack of a payment cap in REPAYE.
The IBR is available for lending under the William D. Ford Federal Direct Lending (Direct Loans) and Federal Family Education Loan (FFEL) programs.
The IBR is not available for loans under the Federal Perkins Loan Program, although Federal Perkins Loans can be made eligible by including them in a Federal Direct Consolidation Loan.
Federal Parent PLUS loans are not eligible for IBR, directly or indirectly. Federal Parent PLUS loans may be eligible for ICR, if included in a federal direct consolidation loan.
Monthly student loan repayments in IBR are based on 15% of discretionary income. Discretionary income is defined as the amount by which adjusted gross income (AGI) exceeds 150% of the poverty line. This Discretionary Income percentage is not the highest or lowest Discretionary Income percentage.
The monthly student loan payment under the IBR is capped at the standard repayment amount over 10 years. This prevents monthly student loan payments from increasing too much as income increases.
IBR also does not have a marriage penalty. If a married borrower files federal income tax returns as a married filing separately, the loan payment under the IBR is based solely on the borrower’s income. Otherwise, loan repayment will be based on joint income.
The minimum payout under the IBR is $10 if the calculated payout is $5 or more, otherwise it is zero.
Treatment of interest
Student loans can be amortized negatively under the IBR. This means that the repayment of the loan is less than the new interest that accrues. Any accrued but unpaid interest is not capitalized under the IBR.
The federal government pays accrued but unpaid interest on subsidized loans for the first three years under the IBR. The federal government does not pay interest on unsubsidized loans or after the first three years under IBR.
Repayment period and loan forgiveness
The maximum repayment period under the IBR is 25 years (300 payments). The same is true for borrowers who have undergraduate and graduate loans. Any remaining debt is canceled after 300 payments made under the IBR, including a calculated zero monthly payment.
If the borrower is eligible for utility loan forgiveness, the remaining debt is canceled after 10 years of payments (120 payments).
Assuming an AGI of $30,000, the initial monthly student loan payment in IBR will be approximately $134 for a family of one and zero for a family of four.
This goes to around $384 and $128 for an AGI of $50,000 and around $634 and $378 for an AGI of $70,000.
These example payments assume a poverty line in 2022 of $12,880 for a family of one and $26,500 for a family of four.