What are these programs?
Income-Based Repayment (IBR) is a repayment option for federal student loans that has been available since 2009. It can 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% 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 with either Direct or FFEL loans, 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% 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% of whatever you earn above that amount. Except for the highest earners, that usually works out to less than 10% of your total income.
This chart shows examples of IBR payment caps as a percentage of the borrower's family income, based on various incomes and family sizes.
What about interest? In some situations, your reduced payment under IBR may not cover the interest on your loans. If so, the government will pay that interest on your Subsidized Stafford Loans for your first three years in IBR. After three years and for other loan types, the interest will be added to the total amount you owe. While your debt may grow if your affordable payments are low enough, anything you still owe after 25 years of qualifying payments will be forgiven.
What are qualifying payments? The Department of Education has indicated that the following types of payments will count towards IBR's 25-year forgiveness period, as long as you are in IBR at some point during those 25 years.
- Payments made in the Income Contingent Repayment plan (ICR) before July 1, 2009.
- All payments made on or after July 1, 2009 in the IBR, Income Contingent Repayment (ICR), and Standard (10-year) Repayment plans.
- Periods when the borrower has a calculated payment of zero in IBR or ICR (this occurs when your income is at or below 150% of the poverty level for your family size).
- Periods on or after July 1, 2009, when the borrower has been granted an economic hardship deferment.
Public Service Loan Forgiveness (PSLF) is a 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 PSLF? 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.
- are employed by any nonprofit, tax-exempt 501(c)(3) organization;
- are employed by the federal government, a state government, local government, or tribal government (this includes the military and public schools and colleges); or
- serve in a full-time AmeriCorps or Peace Corps position.
If you don't meet these criteria, the Department of Education's regulations create a two-part test of other circumstances under which you may still be eligible:
(1) your employer is not "a business organized for profit, a labor union, a partisan political organization, or a non-profit organization engaged in religious instruction, worship services, or any form of proselytizing;"
(2) your employer provides any of the following public services: emergency management; military service; public safety; law enforcement; public interest law services; early childhood education; public service for individuals with disabilities and the elderly; public health; public education; public library services; and school library or other school-based services.
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 FFEL loans 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 (120 monthly payments, not necessarily consecutive) required for Public Service Loan Forgiveness. Qualifying payments are payments made through the William D. Ford Direct Loan Program in any of the following three repayment plans: the Income Contingent Repayment plan, the Standard (10-year) Repayment plan, and the Income-Based Repayment (IBR) plan.
To count, these payments must be made while you're working full-time in an eligible job. "Full-time," according to the final regulations issued by the Department of Education, means an annual average of 30 hours per week or the standard for full-time used by the employer, whichever is greater. For people working part-time at two or more qualifying jobs, "full-time" means an annual average of 30 hours across all jobs held. In professions such as teaching, annual contracts that include at least eight months of full-time work will be treated as the equivalent of a full year's employment. If you meet all the criteria, the earliest your remaining debt could be forgiven is October 2017.
What if I've already paid off my loans by then? This loan forgiveness program will only benefit people who still owe money on their federal loans after 10 years of eligible payments and employment. If your income is low relative to your debt, and you qualify for reduced payments under IBR (or Income Contingent Repayment) at any time during those 10 years, you will likely have debt left to forgive. (Learn more about IBR.)