Hello Heather,

I have a question that I cannot find the answer to in my research of IBR:

My spouse and I have a considerable amount of graduate school debt.  We intend to make decent money in the future, but we are considering IBR.  It appears that we would be paying very little in the beginning.  I understand though that if/when our income gets too high we would be ineligble for IBR, and then would automatically be placed on the standard 10 year repayment plan. 

(1) What happens if we are making low IBR monthly payments (e.g, interest only payments) for the first 10 years and then suddenly in year 10 of 25, our income increases so we are not eligible for IBR?  Does this mean that we are back at square one and must now pay back the new entire loan amount in 10 years? If so, it then appears that by choosing IBR, we are basically delaying the inevitable, and accumulating more interest on top of it.

(2) Once you are kicked out of IBR and into standard repayment, could you then be “reinstated” into IBR if your income decreases in a subsequent year?  If so, does the 25 year “clock” begin at zero again? 

Thanks for your great advice and information, we really appreciate it!

This come directly from the Dept of Ed’s FAQs:

Q15 What happens if my income increases so much that I no longer have a “partial financial hardship” as described in Q&A #4 above? Do I then lose eligibility to repay under IBR?

A15 If your IBR payment amount increases to the point where it is more than the monthly amount you would be required to repay under a 10-year Standard Repayment Plan, you would no longer be considered to have a “partial financial hardship. In this situation, you may remain on the IBR Plan (to take advantage of some of the other IBR benefits, as described in Q&A #2), but your monthly payment will no longer be based on your income. Instead, you will be required to pay the amount you would have been required to pay under a 10-year Standard Repayment based on the amount of your eligible loans that were outstanding when you began repaying under IBR. Your repayment period based on this recalculated amount may be more than 10 years. [January 5, 2010]

Q16 If I am repaying under IBR and my income increases so that I no longer have a partial financial hardship, but I stay in IBR and make the required, recalculated 10-year standard payment amount, is it still possible for me to receive loan forgiveness after 25 years?

A16 As long as you remain on the IBR Plan (even if you no longer have a partial financial hardship) and you otherwise meet the requirements for loan forgiveness, you will qualify for forgiveness of any remaining loan balance at the end of the 25-year period. [January 5, 2010]

Q17 What happens if, after it is determined that I no longer have a “partial financial hardship” and I am no longer making income-based payments (as explained in Q&A #15), my income goes down?

A17 If your income later decreases so that your calculated IBR payment amount is once again less than what you would be required to repay under a 10-year Standard Repayment Plan, you will return to making income-based payments, as described in Q&A #11 above.