Income-Based Student Loan Repayment: Your Guide to IBR
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Income-Based Student Loan Repayment: Your Guide to IBR
Still trying to decide whether an IBR or other IDR plan is right for you? Here are a few things you should keep in mind on your budget and financial situation.student loan forgiveness after 20 to 25 years of on-time payments. Keep in mind, however, that the forgiven balance will likely be taxed as income for the year in which it’s forgiven.
Take advantage of Public Service Loan Forgiveness: If you’re eligible for Public Service Loan Forgiveness, enrolling in IBR or a similar IDR can lower payments and help you maximize the benefits of this program. PSLF grants student loan forgiveness of any remaining balance after just 10 years of qualifying payments. Loans forgiven through PSLF won’t incur a tax bill, as this is not considered taxable income.
Cons of income-driven repayment plans
Loans take longer to repay: Since you’re paying less each month, it will take longer than the typical 10 years on the Standard Repayment Plan to get out of student debt. IDR plans stretch repayment out over 20 to 25 years.
IDR student loan forgiveness isn’t free: Under current tax laws, any remaining student loan balance forgiven as part of income-driven repayment is considered taxable income. So while you might get a large portion of your remaining balance wiped out, it could come with a sizable tax bill.
You might pay more in interest on an IDR: Smaller payments are great for your budget — but they can cause you to end up spending more over the life of your loan. That’s because you’ll be accruing and paying interest for an additional 10 to 15 years.
Your student loan balance could grow: If your student loan balance is very high, you might have high monthly interest charges. But under IDR, your monthly payments might not cover your interest. Interest that goes unpaid could be added to your balance and cause it to grow instead of shrink.
Cons of income-driven repayment plans
Loans take longer to repay: Since you’re paying less each month, it will take longer than the typical 10 years on the Standard Repayment Plan to get out of student debt. IDR plans stretch repayment out over 20 to 25 years.
IDR student loan forgiveness isn’t free: Under current tax laws, any remaining student loan balance forgiven as part of income-driven repayment is considered taxable income. So while you might get a large portion of your remaining balance wiped out, it could come with a sizable tax bill.
You might pay more in interest on an IDR: Smaller payments are great for your budget — but they can cause you to end up spending more over the life of your loan. That’s because you’ll be accruing and paying interest for an additional 10 to 15 years.
Your student loan balance could grow: If your student loan balance is very high, you might have high monthly interest charges. But under IDR, your monthly payments might not cover your interest. Interest that goes unpaid could be added to your balance and cause it to grow instead of shrink.
Lots of paperwork: You’ll have to apply for income-based student loan repayment or IDR plans. You’ll also have to recertify your income every 12 months.