Income-based repayment
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Income-based repayment or income-driven repayment (IDR) is a
student loan A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interes ...
repayment program in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
that regulates the amount that one needs to pay each month based on one's current
income Income is the Consumption (economics), consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be diff ...
and family size. The phrase is an
umbrella term In linguistics, semantics, general semantics, and ontology components, ontologies, hyponymy () is a wikt:Wiktionary:Semantic relations, semantic relation between a hyponym denoting a subset, subtype and a hypernym or hyperonym (sometimes called ...
for four specific repayment plans that are available within the William D. Ford Federal Direct Loan Program (FDLP, FDSLP, and
Direct Loan In finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of Production (economics), production, Distribution (economics), distribution, and Consum ...
) and the
Federal Family Education Loan Program The Federal Family Education Loan (FFEL) Program was a system of Private student loan (United States), private student loans which were subsidized and Loan guarantee, guaranteed by the United States federal government. The program issued loans ...
(FFEL). All these four repayment plans are also named as
Income-Based Repayment Income-based repayment or income-driven repayment (IDR) is a student loan Repayment plan, repayment program in the United States that regulates the amount that one needs to pay each month based on one's current income and family size. The phrase ...
(IBR),
Pay As You Earn A pay-as-you-earn tax (PAYE), or pay-as-you-go (PAYG) in Australia, is a withholding tax, withholding of taxes on income payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent th ...
(PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR).


Mechanics

Payments A payment is the voluntary tender of money or its equivalent or of things of value by one party A party is a gathering of people who have been invited by a Hospitality, host for the purposes of socializing, conversation, recreation, or ...

Payments
under the IBR Plan are 10% or 15% of
discretionary income Disposable income is total personal income minus current income taxes. In national accounts definitions, personal income minus income tax, personal current taxes equals disposable personal income. Subtracting personal outlays (which includes ...
but never exceed the 10-year standard repayment amount. Whether a
borrower A debtor or debitor is a legal entity (legal person) that owes a debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or seri ...
pays 10% or 15% of discretionary income depends on when the borrower first started borrowing student loans. * 10% of the borrower's discretionary income if they borrowed on or after July 1, 2014 * 15% of the borrower's discretionary income if they did not borrow on or after July 1, 2014 Payments under the PAYE Plan are 10% of discretionary income but will never be more than the 10-year standard repayment amount. Payments under the REPAYE Plan are also 10% of discretionary income; however, unlike IBR and PAYE, payments for high-income borrowers may be higher than the 10-year standard repayment amount. Also, unlike IBR and PAYE, if required monthly payments do not cover the accruing interest, 50% of the unpaid interest is forgiven, thereby reducing negative amortization. Payments under the ICR Plan are the lesser of 20% of discretionary income or a 12-year standard repayment amount adjusted based on the borrower's income.


Eligibility

Eligibility requirements for the income-driven repayment plans depend on which plan the
borrower A debtor or debitor is a legal entity (legal person) that owes a debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or seri ...
chooses and when the student borrowed. * The ICR Plan has the fewest eligibility requirements. A borrower is only required to have an eligible loan. * The IBR and Pay As You Earn Plans require that the borrower demonstrate a "need" to make income-driven payments and have eligible loans. * The Pay As You Earn Plan is limited to those who borrowed recently. Specifically, the borrower must be a "new borrower" as of
October October is the tenth month of the year in the Julian calendar, Julian and Gregorian calendars and the sixth of seven months to have a length of 31 days. The eighth month in the old Roman calendar#Legendary 10 month calendar, calendar of Romul ...

October
1, 2007, and have received a disbursement of a Direct Loan on or after October 1, 2011. A borrower is a "new borrower" if, when receiving a federal
student loan A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interes ...
on or after October 1 2007, the borrower did not have an outstanding balance on another federal student loan. * The Revised Pay As You Earn Plan is available to all Direct Loan borrowers regardless of when the money was borrowed. FFEL loans can be made eligible if they are consolidated into a Direct Consolidation Loan.


Eligible loans

Eligible loans for the ICR Plan are all loans made under the William D. Ford Federal Direct Loan Program except Parent PLUS Loans. However, if a Parent PLUS Loan is consolidated into a Direct Consolidation Loan, then the Direct Consolidation Loan may be repaid under the ICR Plan. Eligible loans for the IBR Plan are all loans made under the Ford Program and Federal Family Education Loan Program except for Parent PLUS Loans. Unlike ICR, Parent PLUS Loans cannot be consolidated into a consolidation loan to qualify. Eligible loans for the PAYE Plan are all loans made under the Ford Program except for Parent PLUS Loans. Unlike ICR, Parent PLUS Loans cannot be consolidated into a consolidation loan to qualify. with Federal Family Education Loan (FFEL) Program loans and Federal Perkins Loan Program loans may become eligible for the ICR, Pay As You Earn, and Revised Pay As You Earn plans by consolidating them into a Direct Consolidation Loan.


Different terms and conditions

The IBR and PAYE Plans require that borrowers demonstrate a "need" to make income-driven payments. This debt-to-income test checks to see whether the borrower would see a payment amount reduction under the IBR or PAYE Plan relative to the 10-year standard repayment plan. The IBR Plan has different terms and conditions depending on when the student borrowed. If the borrower is a "new borrower" on or after July 1, 2014, then the borrower will have payments that are generally 10% of discretionary income, and forgiveness is provided for after 20 years of qualifying payment. If a borrower is not a new borrower on or after July 1, 2014, then payments will generally be 15% of discretionary income, and forgiveness is provided for after 25 years of qualifying repayment. Similar to the definition of "new borrower" for Pay As You Earn, a new borrower for the IBR Plan is one who, when receiving a federal student loan on or after July 1, 2014, the borrower did not have an outstanding balance on another federal student loan.


Determining eligibility

Utilizing the repayment estimator online, a borrower may estimate their other monthly payments under all repayment plans, including IBR. However, repayment estimator can only estimate eligibility. To determine that they are eligible, the borrower must contact their loan servicer. The National Student Loan Data System lets a borrower know who is the servicer of their loan.


Public Service Loan Forgiveness Program

The Public Service Loan Forgiveness Program provides for the forgiveness of certain types of federal student loans after 10 years of qualifying employment and payments. The IBR plan can qualify for the Public Service Loan Forgiveness Program. To receive Public Service Loan Forgiveness, the borrower must repay their loans under one of the "income-driven repayment plans," including IBR.


Applying for an income-driven repayment plan

To apply for an income-driven repayment plan, a borrower needs to submit the Income-Driven Repayment Plan Request and provide information about family size and income.
Tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
information, as well as the application itself, and certification of family size, may be provided electronically through StudentLoans.gov. If completing the application electronically, a borrower may transfer tax information into the application directly from the
Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service for the Federal government of the United States, United States federal government, which is responsible for collecting Taxation in the United States, U.S. federal taxes and administerin ...
(IRS). According to the application, borrowers may also self-certify if they currently have no income, thus avoiding needing to try and document that they have no income. Because the eligibility criteria are complex, the application allows borrowers to indicate that they want their loan servicer to determine which of the income-driven plans the borrower is eligible for, and to place the borrower on the income-driven plan with the lowest monthly payment amount.


Recent announcements

On June 9, 2014,
President Obama Barack Hussein Obama II ( ; born August 4, 1961) is an American politician who served as the 44th president of the United States from 2009 to 2017. A member of the Democratic Party (United States), Democratic Party, Obama was the first Af ...

President Obama
announced that the
Department of Education An education ministry is a national or subnational government agency politically responsible for education. Various other names are commonly used to identify such agencies, such as Ministry of Education, Department of Education, and Ministry of Pub ...
would modify the PAYE Plan so that it is available to all borrowers, regardless of when they borrowed. The new repayment plan, Revised Pay As You Earn, launched on December 17, 2015. The U.S. Department of Education Office of Inspector General recently calculated that the portion of total Direct Loan volume being repaid through IDR plans has increased 625 percent from the FY 2011 loan cohort ($7.1 billion) to the FY 2015 loan cohort ($51.5 billion). For IDR plans, the
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Federal government
is expected to lend more money than borrowers repay. From the FY 2011 through FY 2015 loan cohorts, the total positive subsidy cost (net cash outflow) for student loans being repaid through IDR plans has increased 748 percent%(from $1.4 billion to $11.5 billion)


References

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External links


Student AidStudent Loans
*repayment estimato
online
*The National Student Loan Data System
nslds.ed.gov)
Student financial aid