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Income-Based Student Loan Payment Plan: Benefits & Other Options

What is An Income-Based Student Loan Payment?

Income-Based Student Loan Payment (IBSLP) is the most generally available and widely utilized income-driven repayment program for borrowers of federal student loans. IBSLP supports retain monthly loan payments reasonable according to each borrower’s monthly income.

Your student loan payment in an income-based student loan payment built on your discretionary income, rather than your loan balance. This can usually express that a borrower will have a $0.00 monthly payment on their student loan, and this number counts as actual payment.

What Will My Income-Based Student Loan Payment Be?

Your monthly payment will not surpass 10% of your discretionary income if your student loan was disbursed on or after July 1st, 2014. For loans disbursed before this date, your monthly payment will not surpass 15% of your discretionary income. If you need to self-calculate your payment, you can use these chart.

Benefits of Income-Based Student Loan Payment

The primary and most simple advantage of IBSLP is that your monthly student loan payments are determined based on what you earn, rather than what you have. But there are several other advantages of enrolling in an income-based student loan payment plan, also forgiveness at the end of your loan term, interest forgiveness, and loan forgiveness for public service employees.

Interest Forgiveness

Interest forgiveness is another advantage of income-based repayment. The U.S. Department of Education will meet the interest on your loan up to 3 continuous years if your new monthly payment under the IBR plan isn’t high enough to pay the accruing interest on the subsidized part of your Direct Loan. Also, if you want to see how much in interest forgiveness you can get, you can use our student loan interest forgiveness calculator.

Forgiveness At End Of Term

Next significant benefit of IBR is loan forgiveness at the finish of your repayment term. An IBR plan gives total loan forgiveness after 20 years for borrowers who took their loans out after July 1st, 2014, or 25 years if the loans were taken before that date. If you make your payments in whole and on time and the loan is yet not fully paid off after this point of time, any left loan amount will be forgiven and rightfully discharged.

Public Service Loan Forgiveness

Student loan forgiveness for public service employees is the last benefit of IBR. You can qualify to have the leftover balance forgiven in the public service loan forgiveness program if you perform 120 payments, on time and in whole, under an Income-Based Repayment program, while hired full-time with a qualifying public service organization. This could protect up to another 15 years of payments.

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Drawbacks of Income-Based Student Loan Payments

While an IBSLP plan can give several advantages for many student loan borrowers, this kind of plan isn’t best for everyone. There are multiple drawbacks to Income-Based Student Loan Payment, including payment recertification and recalculation, penalties for unexpected tax bills and failing to pay interest on your loan.

Annual Recalculation and Recertification

Your monthly payment is recalculated each year with an Income-Based Repayment plan. Income (including that of your spouse if filing taxes jointly) and changes to your family size will adjust your expected monthly payment.

The great news here is that if your income increases dramatically, you can adjust your repayment plan into a standard repayment at any time you want. The sad news is that your monthly payment can rise significantly based on your income, throwing a wrench into any raise or promotion you may earn on the way.

You have to recertify your income every year to avoid getting your IBR plan canceled and reverted to a standard 10-year plan. Certifying your income each year can be a notable hassle and not one that everyone will get worth the time.

Paying More Overall

Your monthly fees are capped based on your income with an IBSLP plan, that means the interest on your loan may not get paid off within those monthly payments. Due to staying in debt for a longer span of time under an IBSLP plan, your loan has a longer time to accrue interest. IBSLP plan means funding a higher dollar amount overall, even if it is spread out between smaller monthly payments.

Doubling Your Time In Debt

The significant benefit of a ten-year standard repayment plan is that you know when you’ll be finished paying off your student loans. But IBSLP plans focus on reducing your monthly payment value, rather than paying off the loan within a specific timeframe, which implies you could be paying off your student loans for 20 to 25 years. The less your monthly payments, the longer you can expect to be in debt.

Unexpected IBSLP Bills

After 20-25 years of timely payments, the U.S. Department of Education will forgive your loan under your IBSLP plan depending on your loan. Your loan will be forgiven if you still owe money on your student loan after 20-25 years.

But, that doesn’t ever mean you’re off scot-free. Any balance that’s forgiven via the federal government is managed by the IBSLP as taxable income. This means if you still have a notable number left on your loans when they’re forgiven, you could be dealt an income tax bill for thousands of dollars.

Alternative Income-Based Options

BR is not the single choice to think when it comes to income-driven repayment (IDR) for your student loans, and it’s essential to know each choice completely before picking one or the other. Another income-driven repayment choice might help you more than IBSLP, based on your financial status and the kind of loans you have.

There are four IDR plans to consider:

  • Income-Based Student Loan Payment (IBSLP)

Borrowers who take out student loans on or after July 1, 2014, will make payments for 20 years and have payments capped at 10% of discretionary income.

Your payment is equal to 10% of your income and never exceeds what your payment would be under a standard 10-year plan under a PAYE plan. The repayment time under PAYE plans is 20 years.

  • Income-Contingent Repayment (ICR)

An ICR plan lets you pay the lesser between each what you would pay with a fixed plan over 12 years or 20% of your discretionary income. Borrowers who qualify for the 20% right can make payments under ICR for up to 25 years.

This plan caps your payment at 10% of your discretional income. Your income term can remain up to 25 years if you have loans from professional or graduate school.

Get Started And Apply

Applying for IBSLP is relatively easy, but you should be ready to submit income confirmation report. You can utilize for IBR and the other kinds of income-driven repayment programs online at using your FSA ID or via paper application.

The advantages of the Department of Education’s Income-Based Student Loan Payment program are extensive and explicitly designed to assist individuals and families in financial need while ensuring that the Federal Student Loan Program stays healthy and available for future students.