Frequently Asked Questions
>>>See the U.S. Department of Education's Q&A about Income-Based Repayment (IBR)<<<
>>>Visit the U.S. Department of Education's web page on Pay As You Earn<<<
My lender is asking for last year’s Adjusted Gross Income (AGI), which is no longer accurate. Is there anything I can do? What if I did not file a tax return?
If I sign up for IBR, can I occasionally send in extra money to pay down the principal of my loan?
Loan Forgiveness Questions
How does loan forgiveness work with IBR?
GENERAL IBR QUESTIONS
IBR is available to all student loan borrowers with federal loans who have high debt relative to their income. IBR is available for most types of federal loans made to students, but not those made to parents (click here for more information about qualifying loans). Use our calculator to see if you may be eligible for lower payments through IBR.
To apply for IBR, borrowers can log in at Studentloans.gov, enter their personal information into the Electronic IBR Application, authorize a transfer of their tax information using the IRS Data Retrieval Tool, and review, electronically sign and submit the completed form online.
Whether you're first applying for IBR or just need to update your income information, this new tool will make it much easier for many borrowers to keep their loan payments manageable. If your loan servicer is already participating, you can fill out the form, electronically transfer your tax information, and sign and submit the whole package online.
All Direct Loan servicers plus several others are already in the system, and the Department of Education has said it expects to have all servicers plugged in by Spring 2013. But you don't have to know the name of your servicer to use the tool; it'll flag that for you and tell you how to proceed.
The new tool also provides information for married borrowers who file jointly, for borrowers whose income has changed significantly since their last tax return, and for those already in IBR to provide annual income verification using the IRS data retrieval process.
For more information, to apply for IBR, or to update your income information, please visit Studentloans.gov.
If you have a federal loan from any lender, you should be able to find it in the National Student Loan Data System database. This database also lists the amount and status of all your federal student loans.
Income-Based Repayment is available for any federal loans in the Direct Loan or Federal Family Education Loans (FFEL) programs, regardless of when the loan was taken out.
No, IBR is not available for private, non-federal, or alternative loans. It is also not an option for Parent PLUS loans or federal consolidation loans that include a Parent PLUS loan.
No. If you are able to get out of default, you will then be able to choose IBR or another repayment plan. For more information on how to get out of default, visit Student Loan Borrower Assistance.
If your reduced payment under IBR does not cover the interest on your loans, the government will pay that interest on your Subsidized Stafford Loans during your first three years in IBR. After three years, and for all other loan types, the interest will accrue but not compound. That means it will be added to your principal, but interest will continue to accrue only on the original principal amount. Anything you still owe after 25 years of qualifying payments will be forgiven. For more information on this topic, see Question 35 of the Department of Education's IBR Q&A.
You can change repayment plans at any time. However, any unpaid interest that has accumulated in IBR would be capitalized when you switched out of the program, which means it will be added to your total loan amount. Also, current regulations require that when you leave IBR, you must go into a 10-year standard payment plan (or longer for a consolidated loan), minus the number of years you were in IBR. If a standard plan is not affordable, you can switch to another plan, but you can only return to IBR if you have a "partial financial hardship".
A partial financial hardship is when the 10-year standard monthly payment on what you owed when you first entered repayment is more than 15% of discretionary income. You must have a partial financial hardship to be eligible for IBR.
- ICR has been around since 1994. IBR started in 2009.
- ICR is only for Direct Loans. IBR is available for both Direct and FFEL loans.
- ICR and IBR use different formulas to determine the amount of your monthly payment. For more information on the specifics of these formulas, see FinAid.org.
- You do not need a partial financial hardship to be eligible for ICR. Therefore, some people who are ineligible for IBR may be able to benefit from ICR.
- Generally speaking, IBR
will yield lower monthly payments than ICR, although there are a few scenarios
where ICR is a better choice. To find out which one works best for you,
we recommend using both the IBR calculator and the ICR calculator.
- For more information on the two programs, see the Department of Education's IBR Q&A.
As with any repayment plan that allows you to pay less per month, it is possible to pay more in the long run with IBR due to accumulated unpaid interest. However, the loan forgiveness provisions of IBR and Public Service Loan Forgiveness (PSLF) can end up saving you money in the long run. IBR is designed for people with high debt-to-income ratios over a long period of time. It may not be the best or most affordable option for everyone who is eligible at a given time. Read the following three questions for more information.
Because your IBR payment amount is a percentage of your income, your payments will rise as your income increases. Borrowers can now retrieve and transfer their own tax information into Electronic IBR Application, speeding up the process for determining payment levels.
If your income increases to the point where you no longer have a partial financial hardship, any unpaid interest that has accumulated would be capitalized (added to your total loan balance). You can still stay in IBR, and your payments will be capped at the 10-year standard monthly payment on the balance you owed when you first entered repayment on the loan. You will never be "kicked out" of IBR based on your income. Here's a calculator to find out what that 10-year standard payment would be.
No. The only information lenders provide to FICO, the company that determines your credit score, is the status of your payments. That is, if you are paying on time, are past due, or are in default. The Department of Education will work with the consumer reporting organizations to ensure that any amounts of debt forgiven under IBR or PSLF are not viewed as negative reporting codes.
My lender is asking for last year's Adjusted Gross Income (AGI), which is no longer accurate. Is there anything I can do? What if I did not file a tax return?
If your income changes substantially at any point, if your tax return does not reflect your current financial situation, or if you did not file a tax return, let your lender know and ask to complete an Alternative Documentation of Income form. This form lets you give evidence of your income other than your AGI.
Yes. Tell your lender in writing, along with the payment, that you want the extra money applied to the principal, and follow up to make sure the payment was properly applied.
Yes. Even if the government (or other lender) sells or reassigns your loan, you can still participate in IBR as long as you are in repayment (not in default) and meet all of the other eligibility criteria.
I’m not eligible for IBR or ICR, but am having difficulty paying my federal student loans. Is there help for me?
If you are struggling with your loan payments, you’ll find extensive information for consumers at www.studentloanborrowerassistance.org.
The calculator indicates that I am not eligible for IBR when I include my spouse’s income, but might be if I file my taxes separately from my spouse. What should I do?
It is true that you and your spouse are allowed to file your taxes separately in order to take advantage of IBR. However, you may lose certain tax benefits when you file separately, such as the Earned Income Tax Credit, or the ability to deduct the interest you pay on your student loans. Unfortunately there’s no easy way to compare the benefits gained by lower payments through IBR and those lost by filing separately.
For married borrowers who file their taxes jointly, lenders will factor in the couple's total federal student loan debt, as well as their total income, to calculate payments. Originally, IBR did not recognize that joint income has to cover both spouses' federal loan payments, resulting in payment requirements up to twice what two equivalent single people would have to pay. More information is available here. The Department's IBR Q&A also has information about married borrowers.
IBRinfo.org is part of the Project on Student Debt at the nonprofit research and policy organization, the Institute for College Access & Success. We cannot provide legal or financial advice to borrowers, and are in no way responsible for the administration of these programs. If you have a question about IBR or Public Service Loan Forgiveness not addressed in this FAQ, you may submit questions to the Federal Student Loan Ombudsman at the U.S. Department of Education. More information for borrowers struggling with student loan repayment is available at www.studentloanborrowerassistance.org.
GENERAL PAY AS YOU EARN QUESTIONS
Pay As You Earn (PAYE) is a is a modified version of the Income-Based Repayment plan for some current students and recent graduates. The plan lowers the payment cap from 15% to 10% of a borrowers' discretionary income, and forgives any remaining debt after 20 rather than 25 years of payments.
To be eligible for PAYE, borrowers must have taken out their first federal student loan after September 30, 2007 and at least one after September 30, 2011. Only Direct Loans qualify.
Pay As You Earn went into effect December 21, 2012. Visit studentloans.gov to apply and compare to other repayment options.
LOAN CONSOLIDATION QUESTIONS
No, but you may want to anyway. Your lender will take all of your federal loans into consideration in determining your IBR eligibility and payment. If you have multiple lenders, your total IBR payment will be apportioned among the lenders. This will require communication and cooperation from multiple lenders, more paperwork, and an increased risk of errors or problems, so consolidating your loans might be a way to streamline the process. Here is some information on the pros and cons of student loan consolidation.
If I have multiple unconsolidated loans, will I have to consolidate them to qualify for Public Service Loan Forgiveness (PSLF)?
Not if all of your loans are in the William D. Ford Direct Loan program, although consolidating may make it easier for you to keep track of your forgiveness-eligible payments, and to fill out the annual IBR or Income-Contingent Repayment (ICR) income verification paperwork when participating in either of those repayment plans. If any of your loans are in the Federal Family Education Loan (FFEL) guaranteed loan program, then you must consolidate these loans into the Direct Loan program for them to be eligible for PSLF - you can consolidate FFEL loans for the purpose of attaining PSLF even if you have consolidated previously. Please be aware than any time you consolidate your federal student loans, it creates a "new" loan - this means that any PSLF-eligible payments you made on your Direct Loan prior to consolidating would no longer be counted toward PSLF on this "new" consolidated loan.
If you have multiple federal loans, you can consolidate them into one loan. The fixed interest rate of the new loan will be an average of the rates of the loans you consolidate. Many Federal Family Education Loan (FFEL) lenders have stopped making federal consolidation loans, so many borrowers are consolidating through the U.S. Department of Education’s Direct Loan Program. This will also make you eligible for Public Service Loan Forgiveness if you work in a public service job. Click here to learn more about and/or apply for Direct Loan consolidation.
You can NOT consolidate private, non-federal loans into the Direct Loan program. Private loans are not eligible for IBR or Public Service Loan Forgiveness (PSLF).
In general, once you consolidate your loans, you can not reconsolidate. However, there are a couple exceptions. If you have Federal Family Education Loans (FFEL) loans—where your lender is a private entity like Sallie Mae or Citibank—you can consolidate into the Direct Loan program to qualify for Public Service Loan Forgiveness, even if you have already consolidated your loans in the FFEL program.
Also, if you are consolidating to obtain either Income-Contingent Repayment (ICR) or Income-Based Repayment because your loan has been submitted to a guaranty agency for default aversion, you can reconsolidate, even if you have previously consolidated. Click here for more information on loan consolidation.
Yes. According to the Department of Education's Income-Based Repayment application, both you and your spouse must sign the IBR application. In order to qualify, "both you and your spouse must have partial financial hardship to repay an eligible joint consolidation loan under IBR." Since each borrower is obligated to the full joint consolidation loan, the full loan amount would be used in the calculation for each borrower in determining whether they have a partial financial hardship. The IBR calculation for each married borrower with joint consolidation loans who file their taxes jointly would be based on the total loan amount and the combined income.
Joint Direct Consolidation Borrowers are also eligible to apply for Public Service Loan Forgiveness if they meet all the other eligibility criteria. If only one borrower qualifies for PSLF, only a prorated portion of the remaining balance of the debt (based on the same proportion of that borrower's debts to the original consolidation loan) would be forgiven. If both borrowers meet the requirements for PSLF, the entire balance would be forgiven. Unfortunately, FFEL joint consolidation borrowers are currently unable to "reconstitute" the joint loan in the Direct Loan program to take advantage of PSLF.
LOAN FORGIVENESS QUESTIONS
You can receive loan forgiveness for any remaining debt, including interest, after 25 years of qualifying payments. The following types of payments 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)
- All payments made on or after July 1, 2009 in the IBR, 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
To be eligible for Public Service Loan Forgiveness (PSLF) you must make 120 of the right kind of payments, with the right kind of loan, while working in the right kind of job. The 120 payments do not have to be consecutive. If you’re doing all of these things, the first date that a payment can count towards PSLF is October 2007, and the first date that one can be eligible for forgiveness is October 2017.
More details on the eligibility criteria for PSLF:
1) The right kind of job. In general, you should qualify if you are a full-time employee of a local, tribal, state, or federal government, or a 501(c)(3) nonprofit. Full-time is defined as an annual average of at least 30 hours a week, or the number of hours your employer considers full-time, whichever is GREATER (unless you work for multiple public service employers, in which case only the “30 hours a week” definition applies). For teachers and other public service employees whose typical employment period is for 8 months or more, the full-time guideline is working an average of at least 30 hours per week during that period. See the next question for details on other jobs that may qualify.
2) The right kind of loan. These are federal Direct Loans (William D. Ford Direct Loan Program). If you have federal loans from a private lender through the Federal Family Education Loan (FFEL) Program, you can consolidate into a Direct Loan to take advantage of PSLF, even if you have consolidated previously.
3) The right kind of payment. These are payments made under the Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), or Standard 10-Year Repayment plans. PSLF is intended for people who have high debt relative to income and qualify for ICR or IBR for at least part of their career in public service.
According to the Department of Education’s final regulations for PSLF, your job is eligible if you:
- are employed by any nonprofit, tax-exempt 501(c)(3) organization (not sure if yours counts as a 501(c)(3)? Check with the IRS);
- are employed by the federal government, a state government, local government, or tribal government (this includes employment by the military, public schools and colleges, public health centers, etc.); 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;" AND,
(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.
As long as you are working for a U.S. nonprofit organization or a U.S. government employer you should meet the eligibility criteria for employment. PeaceCorps volunteer work is explicitly eligible for Public Service Loan Forgiveness, but unpaid volunteering is not.
I think I qualify for Public Service Loan Forgiveness, but how can I be sure? Is there a way to register for the program?
In January 2012, the Department of Education issued the long-awaited Employment Certification Form for Public Service Loan Forgiveness, which will allow Direct Loan borrowers who work in public service to confirm periods of qualifying employment and payments. This is not the PSLF application, but will help borrowers who may qualify for loan forgiveness stay on track.Visit the Federal Student Aid website for the Employment Certification instructions, form and fact sheet.
No. Only Income-Contingent, Income-Based, and Standard 10-Year payments made since October 2007 count. PSLF is intended for borrowers with high debt-to-income ratios for at least part of their careers in public service. Graduated and extended repayments are available to all borrowers regardless of income, so it would be easy for higher-income borrowers to game the system if these payments were eligible.
I am making PSLF-eligible payments on my undergraduate loans. If I take out more loans to go back to school, will those loans also qualify for PSLF?
Your new loans could also qualify for Public Service Loan Forgiveness, but keep in mind that 1) the loans must be in the Direct Loan program and 2) you cannot start the PSLF clock on your second set of loans until you have entered repayment. Also be aware that if you choose to consolidate your old loans with your new loans, you would then have one big "new" loan, causing the PSLF clock to start over and any PSLF-eligible payments you made on your undergraduate loans before consolidating would no longer count toward the 120 required PSLF payments.
The “Standard 10-Year Repayment Plan” is one of the eligible repayment plans for receiving Public Service Loan Forgiveness. But if I make 120 payments (10 years) in that plan, won’t I have paid off all of my debt?
Yes, if you make Standard 10-Year repayments for 10 years, you won’t have any debt left to forgive. PSLF is intended for people who have high debt-to-income ratios and qualify for ICR or IBR for at least part of their career in public service. However, if you pay under the IBR or ICR repayment plans for even a portion of your PSLF-eligible 120 payments, you would have some debt to forgive after 120 payments, even if you mostly made Standard 10-Year payments during that time.
For my amount of debt, I was told that the “standard plan” is longer than 10 years. Would these lower “standard” payments count towards PSLF?
Unfortunately, the word “standard” can be confusing, as it is used in several different contexts regarding student loan repayment plans. ONLY the Standard 10-Year Repayment Plan is eligible for PSLF, regardless of what the “standard” repayment plan is for your debt level. There’s no minimum time frame for your loan repayment plan, only a maximum. For example, if your consolidation loan balance is $60,000, the MAXIMUM timeframe that you can take to repay this amount is 30 years, but you can choose a payment plan that is any number of years less than or equal to 30 – including the Standard 10-Year plan. You may have to explain this to the loan representatives you speak with, as they are probably not used to borrowers trying to shorten the time frame within which they repay their loans!
The U.S. Department of the Treasury determined that debt forgiven through PSLF is not considered taxable income under current law. That means that when you qualify for PSLF, you won't get slapped with a huge tax bill.
Unfortunately, the same good news doesn't extend to debt forgiven through IBR. In response, Congressman Sandy Levin (D-MI) is leading a bipartisan effort to ensure that borrowers who qualify for loan forgiveness through IBR (and Income Contingent Repayment) get the same treatment. Responsible borrowers with modest incomes shouldn't have to pay potentially crippling taxes on forgiven student loans. We are hopeful that this issue will be resolved before any borrowers qualify for forgiveness through IBR. We'll continue to work on this issue and keep you informed.
Will IBR and Public Service Loan Forgiveness remain available in the future, or could these programs be somehow taken away?
IBR and Public Service Loan Forgiveness were passed into law through the College Cost Reduction and Access Act of 2007, and any major changes to these programs would require new legislation to be passed by Congress and signed by the president. This is highly unlikely to occur in the foreseeable future, and we recommend that borrowers proceed with confidence.