Student loan Income-Based Repayment (IBR) is a student loan repayment option designed to make payments universally affordable based on income and family size. IBR was introduced in 2009. And in 2010, in response to economic conditions, the IBR payment formula was modified to reduce monthly payments to 15% of discretionary income, and to schedule an additional reduction to 10% of discretionary income for 2014.
Amazing Changes Ahead
On October 25, 2011 the White House introduced the “Pay As You Earn” proposal, that moves the 2014 reduction to 2012 and adds a feature forgiving any debt remaining after 20 years of payments.
Student Loans and Credit Repair
Our typical credit repair customer has surmounted the financial challenges of the past and is building a foundation for the future. During the credit rebuilding stage we often suggest making a regular contribution to a savings account; a hard task when the budget is tight. Pending changes aside, the current version of IBR has plenty to offer anyone that feels budgetary stress.
Big Cash Flow Savings
Here is an example from the White House website of savings available under the current plan, and the additional savings possible under the proposed “Pay As You Earn” plan:
“A nurse who is earning $45,000 and has $60,000 in federal student loans. Under the standard repayment plan, this borrower’s monthly repayment amount is $690. The currently available IBR plan would reduce this borrower’s payment by $332 to $358. President Obama’s improved ‘Pay As You Earn’ plan will reduce her payment by an additional $119 to a more manageable $239 — a total reduction of $451 a month.”
Liberate Your Cash Flow
There are several things to consider when deciding on IBR versus a regular 10 year repayment plan. IBR will extend your repayment, meaning that you will pay more interest over time. On the other hand IBR means liberated cash flow. And if extra cash flow means you can live comfortably within your budget, meet your commitments, and maintain your good credit, the benefits of IBR may far outweigh the costs.
If your student loans are in default you will need to get them out of default before you can qualify for Income Based Repayment.