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Income-Based Repayment (IBR, 2014)
November 27, 2018 (published) | November 27, 2018 (revised)
Tony Bartels, DVM, MBA

Income-Based Repayment (IBR, 2014)

IBR is a federal student loan repayment plan that first became eligible to borrowers in October 2009. In 2014, IBR was updated by law for new borrowers as of July 1, 2014.  This is sometimes referred to as New IBR.  We refer to it as IBR, 2014 to differentiate it from the older version of IBR, 2009.

Payments under IBR, 2014 are based on your income and are made for a maximum of 240 monthly payments over 20 years. Any amount remaining after 240 monthly payments are forgiven.

Two factors determine your eligibility to repay under IBR, 2014:

  • Loan types: Only Direct loans disbursed to new borrowers as of July 1, 2014 qualify for payment under IBR, 2014. Federal Perkins and Health Professions Student Loans are also eligible if consolidated into a Federal Direct Consolidation loan, provided the borrower still meets the IBR, 2014 new borrower requirement. Check NSLDS.ED.GOV to confirm your loan types.  Upload your NSLDS file into the VIN Foundation My Student Loans tool to determine your income-driven repayment eligibility.
  • Partial financial hardship: You have a partial financial hardship (PFH) if the payments due under IBR, 2014 are less than the payments that would be due under a standard 10-year repayment plan. A rule of thumb: If your debt exceeds your income, you likely demonstrate a PFH.

Note: Those who qualify for IBR, 2014 should also qualify for PAYE.  If you qualify for PAYE, choose PAYE over IBR, 2014.  PAYE and IBR, 2014 are almost identical plans except PAYE caps the amount of unpaid interest that can be added to your principal balance.  This additional insurance provision available in PAYE and not available in IBR, 2014 makes PAYE a better plan than IBR, 2014. 


Calculating Your Payment Due Under IBR, 2014

Your payment due using IBR, 2014 is 10% of your Discretionary Income, a government measure based on your taxable income, family size, and poverty guidelines.

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

Discretionary Income = Your Income – (150% × HHS federal poverty guidelines)

Let’s use the above formula to calculate your 2018 Discretionary Income for a family size of one and a taxable income of $80,000:

Discretionary Income = $80,000 – (1.5 × 12,140) = $67,860

Your monthly payment due under IBR, 2014 is 10% of your Discretionary Income divided by twelve:

IBR, 2014 = 0.10 × $67,860 = $6,780 per year or $565 per month

This calculation reflects your MINIMUM monthly payment due under IBR, 2014. You can always pay more if it makes financial sense to do so. Generally speaking, paying more than the minimum amount due under IBR, 2014 will result in higher total repayment costs. If you are not able to pay your loans to zero prior to forgiveness, you’ll usually end up paying more in total than if you pay the minimum and save for the potential tax on forgiveness. The more that you can push into forgiveness, 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 Planning page for more information.  To simulate the full impact of unpaid interest accrual and to plan for forgiveness, try the VIN Foundation Student Loan Repayment Simulator.

To remain in IBR, 2014 you must provide yearly documentation of your income. If you fail to provide timely documentation, your payment will revert to the standard 10-year repayment amount due when you entered repayment and any unpaid interest will be capitalized at a maximum of 10% of your starting repayment balance (see table and discussion below).

Monthly payments due under IBR, 2014 are often less than the interest that accrues each month. This is called negative amortization. With a low enough income (ie. during an internship, residency or leave of absence, etc), it is possible to have a monthly payment equal to zero. These zero amount payments still count towards the 240 monthly payments due before forgiveness.

With negative amortization, you may have principal and unpaid interest amounts remaining after 240 monthly payments over 20 years under IBR, 2014. If that is the case, any remaining debt is forgiven or “canceled” and treated as taxable income. The taxable amount will depend on the amount forgiven and your marginal income tax rate during the year of forgiveness.

Interest Accumulation and Unpaid Interest Accrual example for one year of repayment using PAYE:

  • Your starting federal loan repayment balance = $200,000 @ 6%
  • Your income = $80,000, Your family size = 1, and your PAYE payment due = $565 per month
  • Each month, $1,000 of interest accumulates on your principal.  Your payment covers $565 of that, thus your loan balance grows by $435/mo the first 12 months of repayment.

Payment #

Loan Principal

Interest Accumulation per month

Payment per month

Unpaid Interest Accrual Balance

1

$200,000

$1,000

$565

$435

2

$200,000

$1,000

$565

$870

3

$200,000

$1,000

$565

$1,305

4

$200,000

$1,000

$565

$1,740

5

$200,000

$1,000

$565

$2,175

6

$200,000

$1,000

$565

$2,610

7

$200,000

$1,000

$565

$3,045

8

$200,000

$1,000

$565

$3,480

9

$200,000

$1,000

$565

$3,915

10

$200,000

$1,000

$565

$4,350

11

$200,000

$1,000

$565

$4,785

12

$200,000

$1,000

$565

$5,220

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