Income Based Repayment For Student Loans
Income Based Repayment Means Less Financial Stress
Student loan Income-Based Repayment (IBR) is a student loan repayment option designed to make payments universally affordable based on income and family size. IBR was introduced in 2009. And in 2010, in response to economic conditions, the IBR payment formula was modified to reduce monthly payments to 15% of discretionary income, and to schedule an additional reduction to 10% of discretionary income for 2014.
Amazing Changes Ahead
On October 25, 2011 the White House introduced the “Pay As You Earn” proposal, that moves the 2014 reduction to 2012 and adds a feature forgiving any debt remaining after 20 years of payments.
Student Loans and Credit Repair
Our typical credit repair customer has surmounted the financial challenges of the past and is building a foundation for the future. During the rebuilding stage we often suggest making a regular contribution to a savings account; a hard task when the budget is tight. Pending changes aside, the current version of IBR has plenty to offer anyone that feels budgetary stress.
Handy Links:
Big Cash Flow Savings
Here is an example from the White House website of savings available under the current plan, and the additional savings possible under the proposed “Pay As You Earn” plan:
“A nurse who is earning $45,000 and has $60,000 in federal student loans. Under the standard repayment plan, this borrower’s monthly repayment amount is $690. The currently available IBR plan would reduce this borrower’s payment by $332 to $358. President Obama’s improved ‘Pay As You Earn’ plan will reduce her payment by an additional $119 to a more manageable $239 — a total reduction of $451 a month.”
Liberate Your Cash Flow
There are several things to consider when deciding on IBR versus a regular 10 year repayment plan. IBR will extend your repayment, meaning that you will pay more interest over time. On the other hand IBR means liberated cash flow. And if extra cash flow means you can live comfortably within your budget, meet your commitments, and maintain your good credit, the benefits of IBR may far outweigh the costs.
IBR Limitations
If your student loans are in default you will need to get them out of default before you can qualify for Income Based Repayment. Here is a great article on resolving student loan problems: Student Loans and Credit Repair.
3 Responses
I have been following your blog for a while and I thought it was time to post a little note appreciating the quality and practical value of the info you publish. The last article on the HARP mortgage refinance program was amazingly helpful to me and my husband. We have contacted our lender and have started the paperwork. We are actually very grateful to you all. I have read this article with interest and am forwarding it to our daughter who, I think, will be able to do this. Many thanks!
Hi again Darlene, I’m glad that you (and your daughter too) are benefiting from the opportunities we have written about. Our goal is to provide practical and clear pointers, so it is great to get the positive feedback. We wish you all the best! In case she wants to explore further, here is a link to another good article on our site about student loan solutions.
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