Income-based repayment or income-driven repayment (IDR) is a

student loan A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interest r ...

repayment program in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

that regulates the amount that one needs to pay each month based on one's current

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...

and family size. The phrase is an

umbrella term In linguistics, semantics, general semantics, and ontologies, hyponymy () is a semantic relation between a hyponym denoting a subtype and a hypernym or hyperonym (sometimes called umbrella term or blanket term) denoting a supertype. In othe ...

for four specific repayment plans that are available within the William D. Ford Federal Direct Loan Program (FDLP, FDSLP, and Direct Loan) and the

Federal Family Education Loan Program The Federal Family Education Loan (FFEL) Program was a system of private student loans which were subsidized and guaranteed by the United States federal government. The program issued loans from 1965 until it was ended in 2010. Similar loans ...

(FFEL). All these four repayment plans are also named as Income-Based Repayment (IBR),

Pay As You Earn A pay-as-you-earn tax (PAYE), or pay-as-you-go (PAYG) in Australia, is a withholding of taxes on income payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as ...

(PAYE), Revised Pay As You Earn (REPAYE), and

Income-Contingent Repayment Income-contingent repayment is an arrangement for the repayment of a loan where the regular (e.g. monthly) amount to be paid by the borrower depends on his or her income. This type of repayment arrangement is mostly used for student loans, where th ...

(ICR).

Mechanics

Payments A payment is the voluntary tender of money or its equivalent or of things of value by one party (such as a person or company) to another in exchange for goods, or services provided by them, or to fulfill a legal obligation. The party making the ...

under the IBR Plan are 10% or 15% of

discretionary income Disposable income is total personal income minus current income taxes. In national accounts definitions, personal income minus personal current taxes equals disposable personal income. Subtracting personal outlays (which includes the major ...

but never exceed the 10-year standard repayment amount. Whether a

borrower A debtor or debitor is a legal entity (legal person) that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor. When the counterpart of this ...

pays 10% or 15% of discretionary income depends on when the borrower first started borrowing student loans. * 10% of the borrower's discretionary income if they borrowed on or after July 1, 2014 * 15% of the borrower's discretionary income if they did not borrow on or after July 1, 2014 Payments under the PAYE Plan are 10% of discretionary income but will never be more than the 10-year standard repayment amount. Payments under the REPAYE Plan are also 10% of discretionary income; however, unlike IBR and PAYE, payments for high-income borrowers may be higher than the 10-year standard repayment amount. Also, unlike IBR and PAYE, if required monthly payments do not cover the accruing interest, 50% of the unpaid interest is forgiven, thereby reducing negative amortization. Payments under the ICR Plan are the lesser of 20% of discretionary income or a 12-year standard repayment amount adjusted based on the borrower's income.

Eligibility

Eligibility requirements for the income-driven repayment plans depend on which plan the

chooses and when the student borrowed. * The ICR Plan has the fewest eligibility requirements. A borrower is only required to have an eligible loan. * The IBR and Pay As You Earn Plans require that the borrower demonstrate a "need" to make income-driven payments and have eligible loans. * The Pay As You Earn Plan is limited to those who borrowed recently. Specifically, the borrower must be a "new borrower" as of

October October is the tenth month of the year in the Julian and Gregorian calendars and the sixth of seven months to have a length of 31 days. The eighth month in the old calendar of Romulus , October retained its name (from Latin and Greek ''ôct ...

1, 2007, and have received a disbursement of a Direct Loan on or after October 1, 2011. A borrower is a "new borrower" if, when receiving a federal

on or after October 1 2007, the borrower did not have an outstanding balance on another federal student loan. * The Revised Pay As You Earn Plan is available to all Direct Loan borrowers regardless of when the money was borrowed. FFEL loans can be made eligible if they are consolidated into a Direct Consolidation Loan.

Eligible loans

Eligible loans for the ICR Plan are all loans made under the William D. Ford Federal Direct Loan Program except Parent PLUS Loans. However, if a Parent PLUS Loan is consolidated into a Direct Consolidation Loan, then the Direct Consolidation Loan may be repaid under the ICR Plan. Eligible loans for the IBR Plan are all loans made under the Ford Program and Federal Family Education Loan Program except for Parent PLUS Loans. Unlike ICR, Parent PLUS Loans cannot be consolidated into a consolidation loan to qualify. Eligible loans for the PAYE Plan are all loans made under the Ford Program except for Parent PLUS Loans. Unlike ICR, Parent PLUS Loans cannot be consolidated into a consolidation loan to qualify.

Borrowers ''The Borrowers'' is a children's fantasy novel by the English author Mary Norton, published by Dent in 1952. It features a family of tiny people who live secretly in the walls and floors of an English house and "borrow" from the big people in ...

with Federal Family Education Loan (FFEL) Program loans and Federal Perkins Loan Program loans may become eligible for the ICR, Pay As You Earn, and Revised Pay As You Earn plans by consolidating them into a Direct Consolidation Loan.

Different terms and conditions

The IBR and PAYE Plans require that borrowers demonstrate a "need" to make income-driven payments. This debt-to-income test checks to see whether the borrower would see a payment amount reduction under the IBR or PAYE Plan relative to the 10-year standard repayment plan. The IBR Plan has different terms and conditions depending on when the student borrowed. If the borrower is a "new borrower" on or after July 1, 2014, then the borrower will have payments that are generally 10% of discretionary income, and forgiveness is provided for after 20 years of qualifying payment. If a borrower is not a new borrower on or after July 1, 2014, then payments will generally be 15% of discretionary income, and forgiveness is provided for after 25 years of qualifying repayment. Similar to the definition of "new borrower" for Pay As You Earn, a new borrower for the IBR Plan is one who, when receiving a federal student loan on or after July 1, 2014, the borrower did not have an outstanding balance on another federal student loan.

Determining eligibility

Utilizing the repayment estimator online, a borrower may estimate their other monthly payments under all repayment plans, including IBR. However, repayment estimator can only estimate eligibility. To determine that they are eligible, the borrower must contact their loan servicer. The National Student Loan Data System lets a borrower know who is the servicer of their loan.

Public Service Loan Forgiveness Program

The Public Service Loan Forgiveness Program provides for the forgiveness of certain types of federal student loans after 10 years of qualifying employment and payments. The IBR plan can qualify for the Public Service Loan Forgiveness Program. To receive Public Service Loan Forgiveness, the borrower must repay their loans under one of the "income-driven repayment plans," including IBR.

Applying for an income-driven repayment plan

To apply for an income-driven repayment plan, a borrower needs to submit the Income-Driven Repayment Plan Request and provide information about family size and income.

Tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

information, as well as the application itself, and certification of family size, may be provided electronically through StudentLoans.gov. If completing the application electronically, a borrower may transfer tax information into the application directly from the

Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory t ...

(IRS). According to the application, borrowers may also self-certify if they currently have no income, thus avoiding needing to try and document that they have no income. Because the eligibility criteria are complex, the application allows borrowers to indicate that they want their loan servicer to determine which of the income-driven plans the borrower is eligible for, and to place the borrower on the income-driven plan with the lowest monthly payment amount.

Recent announcements

On June 9, 2014,

President Obama Barack Hussein Obama II ( ; born August 4, 1961) is an American politician who served as the 44th president of the United States from 2009 to 2017. A member of the Democratic Party, Obama was the first African-American president of the ...

announced that the

Department of Education An education ministry is a national or subnational government agency politically responsible for education. Various other names are commonly used to identify such agencies, such as Ministry of Education, Department of Education, and Ministry of Pub ...

would modify the PAYE Plan so that it is available to all borrowers, regardless of when they borrowed. The new repayment plan, Revised Pay As You Earn, launched on December 17, 2015. The U.S. Department of Education Office of Inspector General recently calculated that the portion of total Direct Loan volume being repaid through IDR plans has increased 625 percent from the FY 2011 loan cohort ($7.1 billion) to the FY 2015 loan cohort ($51.5 billion). For IDR plans, the

Federal government A federation (also known as a federal state) is a political entity characterized by a union of partially self-governing provinces, states, or other regions under a central federal government ( federalism). In a federation, the self-gover ...

is expected to lend more money than borrowers repay. From the FY 2011 through FY 2015 loan cohorts, the total positive subsidy cost (net cash outflow) for student loans being repaid through IDR plans has increased 748 percent%(from $1.4 billion to $11.5 billion)

References

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External links

Student AidStudent Loans
*repayment estimato
online
*The National Student Loan Data System
nslds.ed.gov)
Student financial aid