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Home » Student Loans » Federal » Do You Qualify for Student Loan Income-Based Repayment?

Do You Qualify for Student Loan Income-Based Repayment?

Updated: November 11, 2021 By DJ Wetzel

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If you are struggling making your student loan payments, income-based repayment plans are a blessing to help you make your loans affordable. These loans, also known as income-driven repayment plans or IDR plans, set your monthly payment amount as a percentage of your income.

Given that student loan default is the worst thing that can happen financially, getting on an affordable monthly payment plan is key.

When thinking about the different student loan repayment plans, here's what you need to know about income-driven repayment.

Table of Contents
What Loans Qualify For Income-Driven Repayment
How the Income-Based Repayment Plan Works
Advantages of Income-Based Repayment
Disadvantage of Income-Based Repayment
Getting Help Applying For IBR
The Bottom Line

What Loans Qualify For Income-Driven Repayment

Depending on when you had your loan disbursed, your loan may be under the old Federal Family Education Loan (FFEL) program, or it may be under the William D. Ford Federal Direct Loan Program. If your loan was disbursed after July 2011, it will be a Direct Loan. If it was disbursed prior to July 1, 2011, it could be either program.

Here is a list of eligible loans:
  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans without underlying PLUS loans made to parents
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans without underlying PLUS loans made to parents

Here are the loans that are not eligible:

  • PLUS loans made to parents
  • Consolidation Loans that include underlying PLUS loans made to parents
  • Private education loans

How the Income-Driven Repayment Plan Works

IDR is designed for borrowers who have a need to reduce their monthly payments, but do not wish to qualify for a full financial hardship or deferment. You will qualify for the IBR if the combined monthly amount you are required to pay on your eligible student loans under the 10-year standard repayment plan is higher than the monthly amount you would be required to pay under IBR. Essentially, this would be most students.

Your monthly payments under IBR are based on your income and your family size, and are adjusted each year based on the same criteria. Your monthly payments are generally the lowest amount of any repayment plan, and they are spread out over 25 years. You also have to submit annual documentation to your loan servicer to set your new payment amount for the next year.

Advantages of Income-Based Repayment

The IBR repayment program allows you to pay the lowest monthly amount possible and still remain in good standing on your loan. You also do not lose the ability to consolidate your loans into the future. You make your monthly payments based on what you earned, so if your income or family status changes from one year to the next, your loan payments can be adjusted to reflect this change.

You also still have access to the 10-year public service loan forgiveness program, as well as having all loans forgiven after 25 years of repayment under IBR.

Disadvantage of Income-Based Repayment

The most obvious disadvantage to this plan is that you will pay more interest over the life of your loan. Spreading out your repayment schedule to 25 years will lower your monthly payments, but you may pay substantially more interest over the course of your loan repayment.

You will have to re-certify your eligibility and income status each year. Similar to submitting a FAFSA, this information will be used to calculate the amount of monthly payments you will make over the next 12 months.

Getting Help Applying For IBR

It sounds like it could be confusing, but it doesn’t have to be. You can sign up for these programs for free at StudentLoans.gov.

You can also call your student loan servicer and start the process with them.

You never need to sign up with a third party company if you want to change your payments, but you can. Just realize that any third party is helping you with something that you can do for free.

If you're not quite sure where to start or what to do, consider hiring a CFA or CFP to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.

The Bottom Line

Selecting your student loan repayment plan has gotten a lot more complicated in recent years, but I think that may be a good thing. I believe that it forces people to take a moment and really understand their student loans, and it also provides much needed relief for folks who are struggling financially.

Your goal should always be to pay your student loans off as soon as possible. The longer you carry a balance, the more interest you will pay. Your goal should be to select the shortest repayment time period that you can afford. For some this may be the 10-year standard plan, while for others you may need to do the Income-Based Repayment Plan. Extending your loan repayment schedule out is always better than missing a payment or defaulting on your student loans.

The goal is to get your loans paid off as soon as possible through whatever means possible!

Have you ever considered IBR for your student loans?

DJ Wetzel

DJ works in financial services at a large public university. He lives in the Southeast with his wife and young daughter.

Do You Qualify for Student Loan Income-Based Repayment?
Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
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