Income-Based Repayment (IBR, 2009)

IBR is a federal student loan repayment plan that first became eligible to borrowers in October 2009. Payments are based on your income and are made for a maximum of 300 months (25 years). Any balance remaining after 300 monthly payments is forgiven. Both federal Direct Loans and Federal Family Education Loan (FFEL) types are eligible for the IBR 2009 plan.

If your first federal student loans were received after July 1, 2014, then you are eligible for the newer version of IBR (IBR 2014). You are either eligible for IBR 2009 or IBR 2014.

Two factors determine your eligibility to repay under IBR:

• Loan types: Most federal student loans (Direct and FFELs) qualify for payment under IBR. Federal Perkins and Health Professions Student Loans are also eligible if consolidated into a Federal Direct Consolidation loan. Check STUDENTAID.GOV to confirm your loan types.  Upload your NSLDS file into the VIN Foundation My Student Loans tool to determine your IBR eligibility.
• Partial financial hardship: You have a partial financial hardship (PFH) if the payments due under IBR are less than the payments that would be due under a standard 10-year repayment plan. A rule of thumb: If your student debt balance is equal to or exceeds your taxable income, you likely demonstrate a PFH.

Calculating Your Payment Due Under IBR, 2009

Your payment under IBR is 15% of your “Discretionary Income.” The Discretionary Income formula measures income available after an allowance determined by multiplying the HHS federal poverty guidelines by a factor.

Two inputs determine your Discretionary Income:

1. Your taxable income, reported by:
   1. Your Adjusted Gross Income (AGI) from your most recently filed tax return (no more than two years old), or
   2. Alternate documentation of income, via a paystub or something similar, annualized to estimate yearly gross income
2. The U.S. Department of Health and Human Services (HHS) Poverty Guideline amount for your family size and state of residence, updated yearly and found here: http://aspe.hhs.gov/poverty
   1. Family size generally counts your spouse plus any other children/family members for whom you provide a majority of financial assistance
   2. As your family size increases, your discretionary income decreases, and your monthly student loan payment under IBR decreases

Officially, your Discretionary Income is the difference between your AGI and 150 percent of the HHS Poverty Guideline amount for your family size and state. Written as a formula:

Let’s use the above formula to calculate your Discretionary Income for a family size of one and an AGI of $125,000. The 2025 HHS federal poverty guideline for a family size of 1 is $15,650:

Your monthly IBR payment equals 15% of your Discretionary Income divided by twelve:

This calculation reflects your MINIMUM monthly payment due under IBR. You can always pay more if your situation allows and it makes financial sense to do so.  Generally speaking, paying more than the minimum amount due under IBR will result in higher total repayment costs. If do not pay your loans to zero before forgiveness, you’ll usually end up paying more in total than if you paid the minimum and saved for the potential tax on forgiveness due after you reach the maximum repayment period. The higher the forgiven balance, the more you’ll reduce your total repayment costs, as long as you plan and save for the anticipated tax on canceled amounts. See the Forgiveness FAQ for more information.

You must provide yearly documentation of your income to continue having a minimum monthly payment that is less than a fixed 10-year plan payment. If you fail to provide timely documentation, your payment will revert to the standard 10-year repayment amount and any unpaid interest will be capitalized (added to your principal balance).

Monthly IBR payments due are often less than the interest that accrues each month. This is called negative amortization. With a low enough income (i.e. during an internship, residency, or leave of absence, etc), it is even possible to have a monthly payment equal to zero under IBR. These zero-amount payments still count towards the 300 monthly payments due before forgiveness. With negative amortization, you may have a higher balance remaining after 25 years than you started with.

Please Note: If you leave IBR, any unpaid interest will be added to your principal balance (capitalized). The higher your principal, the more interest accrues and the more your student loans will cost you, whether you reach forgiveness or not. This is a unique "side effect" of IBR.

After 300 qualifying monthly payments, any remaining debt is forgiven or “canceled” and may be treated as taxable income. The taxable amount will depend on the amount forgiven and your marginal income tax rate during the year of forgiveness. There is a special federal tax exemption on any student loan forgiveness received between 2021-2025. Congress will determine whether or not that tax exemption will continue beyond 2025.