The 411 on Income-Based Repayment (IBR)

There are pros and cons to every plan available under the Income-Driven Repayment (IDR) umbrella. Sorting out which plan is right for you requires research and careful attention to detail. Read on to learn more about Income-Based Repayment, or IBR, and why it might be the right option for paying off your federal student loans.

Why should you choose IBR?

IBR may be the best IDR plan for those who took out their loan(s) after July 2014 and have a steady income that isn’t expected to increase dramatically. Under IBR, your monthly payment may be 10–15% of your discretionary income (depending on when your loan originated) and will never exceed the amount you would pay on the Standard Repayment Plan. As such, it’s often chosen by borrowers who want to ensure a low payment until they can reach forgiveness.

Why the date of your loan matters

Unlike other IDR plans, IBR has a date qualifier that changes the terms of the repayment plan.  This is often known as “old IBR” (for loans that originated before July 2014) and “new IBR” (for those that originated after). The two IBR plans have different monthly payments and forgiveness timelines, so it’s important to understand the distinction. Note that both old and new IBR borrowers are eligible plans for the Public Service Loan Forgiveness program.¹

Recertification

One of the most important things to keep in mind about IBR — and any IDR plan —is the need to recertify your plan each year (whether or not anything that might impact your payment has changed). This must be done annually with your loan servicer to remain eligible for the payment plan and eventual forgiveness (either through IDR or PSLF).

To recertify, you will submit what seems like a new application for IBR. Within the application form, there will be an entry for the reason you’re submitting, where you should specify that you are documenting your income for the annual recertification.

Reporting changes

If your family size, location, or income changes mid-year, you can also recertify before the annual date by submitting updated information and asking your servicer to recalculate your payment. This can benefit you by reducing your payment appropriately—if you have a baby, lose your job or take a pay cut, or make any change that impacts your discretionary income.

Outside of the annual recertification, this midyear reporting is not required—if any of these items change and you do not wish to recalculate your payment immediately, you can wait until the next annual recertification Just remember that even if nothing changes, you must recertify each year.

Failure to recertify

If you fail to recertify under IBR, there are consequences. Your payment will revert to the Standard Repayment Plan amount (which would likely be higher than you’re used to) plus any unpaid interest would be added to your principal balance, increasing the amount you would pay over time. Essentially, you would have a higher monthly payment and a higher loan balance, and you’d now be paying interest on interest. Your loan servicer would also revert your family size to one, possibly further increasing your payment, and you may lose eligibility to base payments on income in the future. Which is to say: set that calendar reminder and don’t forget to recertify!

Do your research

IDR plans exist to make managing and repaying student loan debt easier, but it may take some fine-print reading and research to ensure you’re choosing the right plan for you. Always consult the Federal Student Aid website for updates, and read up on our other guides in this series on Income Contingent Repayment (ICR), Pay As You Earn (PAYE), and Saving on A Valuable Education (SAVE), which is replacing Revised Pay As You Earn (REPAYE). Set up a consultation with our student loan specialists who can help you to choose the best IDR plan for your circumstances.