What Is Income-Based Repayment?

An income-based repayment is a payment schedule based on the borrower's income. It was instituted in 2007 as part of the College Cost Reduction and Access Act and made available to students on July 1, 2009. This form of repayment was developed to make federal student loan payments more affordable for individuals with low incomes or students whose debts are high compared to their incomes. With the income-based plan, monthly payments are affixed to a portion of the student’s monthly income. The great thing is the program does not hold borrowers to a minimum monthly payment to qualify. All payments are determined from a review of the borrower's adjusted gross income from the previous year's tax return and with consideration of his or her family size. Students are required to notify the lender if there is a change in their current incomes so payments can be adjusted accordingly.

Eligible Loans

While this program was developed to make college costs more affordable, not all student loans are eligible for the program. Loans disbursed from federal programs such as the Stafford, Grad PLUS and Direct Consolidated loans are eligible for the income-based repayment plans. However, Parent PLUS, Perkins and student loans from private lenders are not eligible for the income-based plan. Students looking to change their current payment plan should contact their loan servicer or lender to see if they qualify under this program.


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