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What are Income-Based Repayment (IBR) plans?

If money is tight and you’re thinking about skipping a payment or two on your student loan – DON’T! Defaulting on your student loan can have serious long-term repercussions. It can affect your credit score and worse. Did you know the government can garnish your wages and take money directly from your paycheck to satisfy your student loan? Many employers also run routine credit checks on job candidates and toss the resumes of non-payers right in the recycle bin.

Everyone faces financial challenges at some point. If you’re having trouble making ends meet and paying your student loan on time seems next to impossible, check in with your loan servicer before skipping even a single payment. There may be help available for you. One option is an income-based repayment plan (IBR).*

What it is: An income-based repayment plan allows you to renegotiate the payment terms of your student loan without penalty. Like its name implies, an IBR bases required payments on your income and the size of your family.

How it works: If you qualify for an IBR by proving a “partial financial hardship,” your new required monthly payment is reduced to make it more affordable for you. The total amount you owe is not factored into the repayment schedule; only your income and family size are considered when recalculating your monthly payment.

Some benefits: The most obvious benefit of an IBR is that it gives you a little financial breathing room. It lowers your monthly payment. However, it also has the potential to save you even more money, in the long-term. If your monthly payment doesn’t cover the accumulating interest, the government will pay the interest for you, for up to three consecutive years from the date you start paying under an IBR. Also, if you qualify under IBR rules, any loan balance still existing after 25 years may be wiped clean. There’s even an opportunity for loan forgiveness for your unpaid balance after ten years, if you work in public service and have made all your payments on time.

Be aware: You’ll need to submit annual documentation to verify your continued financial hardship. Changes to your family size and income can affect your monthly payment. Also, a reduced monthly payment usually extends the life of your loan and its accruing interest. Not all loan types are eligible under IBR. For example, private education loans and PLUS loans made to parents are ineligible. And finally, loan forgiveness is treated as income and will be taxed, as such, when it is applied.

Paying your student loans on time is vital to your financial stability and your future. At

At Charter College, we want you to have the tools you need to be successful in school and life –and learning to be financially responsible is one of the most important skills you can develop. Be sure to take advantage of all the student services we offer and check out our career-focused programs in accounting, business, criminal justice, health care, nursing, information technology, paralegal, and the trades. Our fast-track programs are designed to help you complete your education as quickly as possible, so you can be prepared for a new job in a new field. 

*Federal Student Aid: An Office of the U.S. Department of Education: https://studentaid.ed.gov/repay-loans/understand/plans/income-based