Income-Based Repayment and Public Service Loan Forgiveness

Income-Based Repayment (IBR) is a new payment option for federal student loans. Starting July 2009, it will help borrowers keep their loan payments affordable with payment caps based on their income and family size. For most eligible borrowers, IBR loan payments will be less than 10 percent of their income - and even smaller for borrowers with low earnings. IBR will also forgive remaining debt, if any, after 25 years of qualifying payments.

Who can use IBR? IBR is available to federal student loan borrowers in both the Direct and Guaranteed (or FFEL) loan programs, and covers most types of federal loans made to students, but not those made to parents (click here for more about qualifying loans). To enter IBR, you have to have enough debt relative to your income to qualify for a reduced payment. That means it would take more than 15 percent of whatever you earn above 150% of poverty level to pay off your loans on a standard 10-year payment plan. Use our calculator to see if you're likely to be eligible.

How does IBR make payments more affordable? IBR uses a kind of sliding scale to determine how much you can afford to pay on your federal loans. If you earn below 150% of the poverty level for your family size, your required loan payment will be $0. If you earn more, your loan payment will be capped at 15 percent of whatever you earn above that amount. Except for the highest earners, that usually works out to less than 10 percent of your total income.

Public Service Loan Forgiveness is a new program for federal student loan borrowers who work in certain kinds of jobs. It will forgive remaining debt after 10 years of eligible employment and qualifying loan payments. (During those 10 years, the Income-Based Repayment (IBR) plan can help keep your loan payments affordable.)

Who can get Public Service Loan Forgiveness? This program is for people with federal student loans who work in a wide range of "public service" jobs, including jobs in government and nonprofit 501(c)(3) organizations.

What are eligible jobs? In most cases, eligibility is based on whether you work for an eligible employer.

What kinds of loans does it cover? It covers federal Stafford, Grad PLUS, or consolidation loans as long as they are in the Direct Loan program. Borrowers with loans in the Guaranteed (or FFEL) loan program must switch to the Direct Loan program to get this benefit.

When does the 10-year clock start, and which payments count? Only payments made after October 1, 2007 count towards the 10 years required for Public Service Loan Forgiveness. Qualifying payments must be made through the Direct Loan program and include Income Contingent Repayment, Standard (10-year) Repayment, or Income-Based Repayment (available in July 2009).  To count, these payments must be made while you're working full-time in an eligible job.

For more information about IBR and Public Service Loan Forgiveness:

IBR Info

U.S. Department of Education

Student Loan Borrower Assistance

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