That paycheck disappears quickly, huh? Luckily, an Income Based Student Loan Repayment plan can help.
If you’re fresh out of college, working a part-time or have a low salary job, you may be quickly realizing that your precious paycheck is barely lasting you until the next payday! And if you have a hefty student loan payment each month, what you earn may not seem like enough to cover your basic needs.
Whether you’re still trying to find a decent paying job or you recently saw a dip in your income, dealing with a massive pile of student loan debt can feel like an incredible burden. But there’s a one student loan solution that could save you some money in the short term: Income Based Repayment.
What is Income Based Repayment?
If you took out federal student loans while you were in college and you’re not making a lot of money now, the income based repayment plan may help lighten your monthly student loan payment.
Income based repayment, or IBR, is just how it sounds: it’s a student loan repayment plan for federal student loan borrowers that bases your monthly loan payment on your current income. IRB reduces your monthly payment for eligible federal student loans, such as Direct Subsidized and Unsubsidized loans, Stafford loans and most Direct Consolidated federal loans. PLUS loans taken out by your parents, consolidated loans that include PLUS loans and private loans are not eligible for IBR.
Under the IBR plan, your monthly payments are based on both your income and family size and adjusted each year based on changes in your earning or family status. Even if you get a future bump in salary, you can still take advantage of smaller monthly payments; once you qualify for the income based repayment plan, you can continue to make payments under IBR even without financial hardship.
How do I know if I qualify for Income Based Repayment?
In order to qualify for the income based repayment program, you have to demonstrate partial financial hardship. That means that the payments on your federal student loans under a standard repayment plan exceed 15% of your discretionary income. So if you bring home $2,000 each month and your student loan payments are above $300 (that’s 15%), you are probably eligible for income based repayment.
Great! How do I sign up for Income Based Repayment?
To get started with your IBR plan, contact your loan servicer. They’ll be able to tell you whether or not you qualify and if the IBR plan makes sense for your situation. You will need to download two forms to send to your servicer: the IBR application and an IRS Tax Form 4506-T.
Any other benefits to Income Based Repayment?
Don’t think you’ll ever escape your mountains of student loan debt? There’s some good news: Your outstanding balance will be forgiven if you make consecutive payments under the income based repayment plan for 25 years (and it reduces to 10 years if you work in public service).
Bottom line: the income based repayment can be a great tool to help you get your head above water and manage your monthly payments. Just remember that decreasing your payments in the short term means you’ll have to pay off more debt in the long run. So be sure to keep the big picture in mind while trying to live a comfortable life with your money today!
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