Dept. of Education Lays Out Loan Repayment Details

Recent introductions and changes to the Income-Based Repayment plan of federal student loans now has some students confused as to their options. In response, the official blog of the U.S. Department of Education has an entry laying out the ins and outs of IBR, and how students can find out if they qualify.

The initial version of IBR capped the loan repayments of students who were up to date on their loans, to 15% of their discretionary income. An amendment, passed in 2010, lowered the cap to 10% for those students who took their loans out after July 1st, 2014. Then, in November, 2011, President Obama, by executive order, expanded the pool of students who qualify for the new lower IBR cap to include some who have taken out loans in 2012. The sequence of rapid changes left some unsure about the impact they would have on their own student loans.

IBR is aimed at helping college graduates whose income-to-debt ratio is too low. Previously, students who thought they might qualify under the IBR rules had to apply to their loan servicers to determine their eligibility. This will change in the fall on 2012, when these decisions will shift to the Department of Education, where those seeking to enroll in the program can apply directly. Those seeking guidance can use the IBR calculator available on the DOE website.

The DOE blog post has a list of frequently asked questions about Income-Based Repayment to assist those who wish to find out about the program in more detail. For example, those who wish to find out if their marital status will effect their IBR eligibility, especially if their spouse is carrying loans as well, will get guidance on how to take their financial changes into account when estimating IBR eligibility:

If you are married and file a joint federal tax return with your spouse, both your income and your spouse’s income are used to calculate your IBR monthly payment amount.

If you are married and you and your spouse file a joint federal tax return, and if your spouse also has IBR-eligible loans, your spouse’s eligible loan debt is combined with yours when determining whether you are eligible for IBR. If the combined monthly amount you and your spouse would pay under IBR is lower than the combined monthly amount you and your spouse are paying under a 10-year standard repayment plan, you and your spouse are eligible for IBR.

They can also see what their monthly payments are expected to be under IBR and get advice on how the lowered discretionary income cap will effect them once in goes into effect.

The FAQ is a great resource to guide students’ decisions when it comes to enrolling in IBR.