8 Student Loan Repayment Plans Explained

5. Income-Based Repayment (IBR)

What it is: IBR is one of the older income-driven plans that caps monthly payments based on discretionary income and offers forgiveness after a qualifying period for eligible borrowers. Who it fits: Borrowers with lower incomes relative to their debt who meet the plan’s eligibility rules. How payments work: Monthly amounts are a percentage of discretionary income, with specific caps and forgiveness timelines that depend on when loans were taken out and other eligibility factors. Pros: Protects borrowers from unaffordable payments and can lead to forgiveness after many qualifying payments. Cons: Complex eligibility rules and potential tax implications for forgiven balances. How to decide: Check whether you’re grandfathered into favorable IBR rules or whether consolidating would change your eligibility. Action steps: Gather recent tax returns and use the federal repayment estimator to see IBR estimates for your loan mix.