How to Adjust Your Student Loan: Income Based Repayment (IBR) Plans

by Lynn B. Johnson on January 16, 2013

My husband and I are typical of a lot of married Americans: we both have student loans and I lost my job last year. We realized pretty quickly that a $500 monthly student-loan payment simply would not jibe with our new one-income budget. That’s when we started investigating what to do next, because we have two small children and homelessness is not an option.

If you lose your job, the first call you should make, that very day, should be to your state’s Unemployment office. If you have a student loan repayment plan that is now outside your budget, the minute you’re done registering for an unemployment claim you should call your student-loan holder, to determine a new repayment option.

This part can be tricky, especially if your loan is no longer in the hands of your original loan servicer. If your loan is a Federal loan, contact the Direct Loan Servicing Center with information found here. For all other Stafford loans, contact the guaranty agency or the federal loan servicer listed for your loan. For Perkins loans, reach out to the U.S. Department of Education’s Federal Student Aid Information Center at 1-800-4-FED-AID (TDD 1-800-730-8913).

Due to the factors of our particular situation, we decided that our best bet would be to apply for student-loan repayment under an Income-Based Repayment (IBR)plan.

Under the IBR Plan, monthly payments are:

  • Based on income and family size
  • Adjusted yearly, based on annual-income and family-size changes
  • Usually lower than they are under other plans
  • Never more than the 10-year standard-repayment amount, and
  • Made over a period of 25 years

We were pretty happy to learn that his loan was eligible for the IBR plan, since his loan package didn’t include any PLUS loans made to his parents or private education loans; if these loans are part of your situation, contact your loan servicer to learn more about deferment, forbearance, or loan consolidation.

Under IBR, our monthly payment will work out to 15% of our discretionary income (per Federal Student Aid: “your adjusted gross income minus the poverty guidelines for your family size”). The monthly payment will never be more than what we would be required to pay under the 10-year Standard Repayment Plan; it might also be less than what we would pay under other repayment plans.

The downside is that we may pay more total interest than we would under other repayment plans, but we are able to deduct student-loan interest from our income tax so I expect that will work itself out. Also, the interest that accrues each month that isn’t covered by our loan payments 1) will not be capitalized, and 2) the government will pay our unpaid accrued interest on our Direct Subsidized Loans or Subsidized Federal Stafford Loans (and the subsidized portion of our Direct or FFEL Consolidation Loans, if we had those) for up to three consecutive years from when the IBR plan payment began.

My husband made the call to Direct Loans while I waited downstairs, chewing my fingernails. He came downstairs looking relieved. Not only had the loan officer offered to send him an Income-Based Repayment Plan packet with the forms we’d need to fill out (mostly just an Alternative Documentation of Income), but the officer knocked the loan payment down from $500 to $10 for two months while we sorted out the paperwork. That alone was worth the 10-minute phone call. We will both need to complete and sign the form, and attach supporting documentation from the past 90 days of our income. Then, we’ll send it in and wait to learn what our adjusted IBR Plan payment will be. We’re guaranteed that it will be less than $500 a month, though, and that is a big relief.

 

 

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