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IBR/Pay As You Earn

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Income-Driven Repayment Plans

Income-Driven repayment plans may be a solution for borrowers who are having difficulty making their standard monthly loan payments.  These plans can make payments more affordable for borrowers with high debt, relative to their income.  Both the Income Based Repayment (IBR) Plan and the Pay As You Earn (PAYE) Plan calculate the monthly payment due based on the borrower's adjusted gross income (AGI), household size, and the federal poverty guideline.

See the sample repayment plan comparison chart to compare monthly payment amounts and projected total interest paid over the life of the loan.

Payments are applied to interest first and principal last, so negative amortization may occur.  Negative amortization is when the amount of your monthly loan payment is less than the amount of interest that accrued on the loan during the billing period.   When this occurs, the unpaid interest may be capitalized (added to the principal balance) if you leave the IBR or PAYE plan (or no longer qualify), which could increase your total debt and the amount you must repay.

Income Based Repayment (IBR)

The Department of Education's IBR website may provide useful information to borrowers who are considering IBR as a repayment option.

  • All federal educational loans are eligible
  • As a borrower's AGI increases, so will the monthly payment amount. See the IBR Chart for examples.
  • After 25 years of qualifying payments, loan forgiveness is available.  According to current tax code, the forgiven amount is considered taxable income.
  • Read the Department of Education's IBR Q&A's for more information.

Pay As You Earn (PAYE)

The Department of Education's PAYE website may provide useful information to borrowers who are considering this option.

  • Only Federal Direct Loans are eligible for PAYE
  • You must be a new borrower as of 10/1/07 and must have received a disbursement on a Direct Loan on or after 10/1/11
  • As a borrower's AGI increases, so will the monthly payment amount.  See the PAYE Chart for examples.
  • After 20 years of qualifying payments, loan forgiveness is available. According to current tax code, the forgiven amount is considered taxable income.