Income Based Repayment (IBR) for Federal Stafford, Grad PLUS, and Consolidation Loans is a new option this year for college borrowers.  This tool has been talked about for years, but it finally came into being in 2009.  In essence, IBR is a system designed to make payments on federal college loans more manageable, particularly for those students who have just graduated and have limited income and resources.  It’s design is not limited to new graduates however, it can also help those with federal college loans no matter how long ago they were taken out if they meet the income and family criteria of the program.

The formula for determining IBR payments is not terribly complex, but it’s far easier just to show you the table developed by the federal government.  Keep in mind that this table will be adjusted every year as it is based in part on the annual poverty line.

There are four primary benefits to borrowers of the IBR program:

1. Payments are lower than the standard 10 year payment program, and likely lower than other available payment programs as well.
2. The government will pay for up to three years of interest on subsidized Stafford loans if your IBR payment does not cover your total interest payment.
3. If you qualify for IBR payments for 25 years and meet certain other requirements, any remaining balance on your federal loans can be canceled after the 25 years of payments.
4. If you work in public service for 10 years and qualify for IBR payments, you may be eligible for forgiveness of your remaining loan balance.  For information on public service loan forgiveness, please read the Loan Forgiveness for Public Service Employees Fact Sheet.

There are also disadvantatges to the IBR program:

1. You will likely pay more interest while paying off your loans under IBR as compared to standard payment programs.  In other words, it will cost you more in the long run.
2. You must submit annual documentation verifying your income and family eligibility for the IBR program.  If the documentation is not provided, your payments will revert to the standard 10-year payment plan.

For more information on the IBR program, check out the Income Based Repayment Fact Sheet.

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