I got an email from FastWeb earlier this week informing me about IBR – Income Based Repayment (and in some cases forgiveness) of student loans.

Usually, I ignore such notifications. I looked into this type of stuff when my student loans first went into repayment in 2008. It felt like everything out there was some sort of scam to get me to pay MORE money. I am sure some people do benefit from those programs – but they just aren’t for me. I don’t want to still be paying on my loans when I’m 80 or have HUGE payments at the end of a 25-year term. But IBR is different – This is something I am glad I took the time to research and sign up for.

Here are some bullet points:

• IBR only applies to federal student loans, including Stafford, Grad Plus, and federal Consolidation loans. IBR will NOT help you with Parent PLUS or private loans.
• Once you sign up for IBR, your monthly payments are based on your income – making it likely that you will actually be able to afford to repay your loan.
• IBR will not hurt your credit (as long as you keep up with the payments they tell you to make)
• When your income goes up, your payments will too. But – they will never go higher than what they were when you signed up. In my case – I am paying $280 per month on my Stafford loan. I am confident that I will never have to pay more than that.
• IBR does not affect your interest rate. – In fact, if your monthly payments are lower than your interest rate, the government will help cover the interest on your loans for the first 3 years. That means if you are like me, and have a monthly bill of $0 – You won’t have to worry about getting further in debt while you try to sort things out.
• Yes, your loans will continue to collect interest (except maybe the first 3 years) potentially making you pay more in the long-run. But if after 25 years you still haven’t paid off the loan – the rest of your debt will be forgiven.

The bad parts?

• As stated above, IBR does not affect your interest rate. … So in the long run, you may end up paying a few thousand dollars more. For this reason, I suggest you pay as much as you can – even if you aren’t required to.
• I have read some articles stating that any amount forgiven at the end of 25 years will be taxed as income. … Honestly – I don’t see this as a problem though. The taxes on $40,000 unpaid loans can’t cost near as much as if you had to pay the $40,000 in the first place.

I filled out an application and mailed it, along with my 2008 income tax return, to my student loan provider (Wachovia) on Tuesday, September 15. I should hear back from them in 10 – 15 business days and will update this post then.

Update

My Income Based Repayment application was accepted in October 2009. I would like to say Thank You to those who made this possible – It has been a huge financial relief to my daughter and me!

After speaking with a representative at the place in charge of my loans, I found out that the renewal process takes about 3 months. It is suggested that I print out the form from their website and fill it out. Then I should send it back to them along with the required papers in the first week of July. … Being the absent-minded person I am, I have decided to send it in June instead. That gives me a few weeks to notice the reminders.

2020 Update

The income based offerings are even better now, with lower payments and a shorter 20-year term! I will stick with the Income-Base-Repayment plan that I signed up for in 2008. I am almost half way through paying it off. No sense in restarting the clock. But I am glad to see that the offers are getting even better for newer borrowers.