Hi Heather,

I recently consolidated my Stafford and Perkins loans into a Direct Loan consolidation loan. My question lies in how IBR is affected by a steadily increasing income.

In short, I am considered to have a “partial financial hardship” as defined by IBR and will continue to have this hardship for the first 5 years of employment. As such, IBR would make sense and allow me to make 60 qualified payments towards PSLF (I work for the Navy).

After the fifth year, I would most likely be considered not to have a partial financial hardship any longer. I’ve received mixed messages from Direct Loans as well as the Ombudsman office. My impression was that at this point, I cannot be kicked OUT of IBR and the maximum monthly payment I would have to make is: “the monthly amount under the 10-year standard repayment plan at the time you entered into IBR and original balance of the loan.” In my case, that is $730. So I would then make 60 more payments of $730 and have met the 120 payments.

The conflicting message I am receiving is that once I am no longer considered to have a financial hardship, my outstanding balance at that point is recalculated to be paid off in the remaining time frame, so 5 years. That would make my monthly payments an exorbitant amount of money and logically, it doesn’t make sense. Plus, the ibrinfo.org site says you can NEVER be kicked out of IBR, so I don’t understand how this is their case.

I’m panicking because I have just submitted my IBR repayment plan application and want to make sure my plan for IBR for 5 years, and the cap of $730 for the final 5 years is a safe one because that will ensure that I have a balance to be forgiven after 10 years/120 payments.

Please help! And thanks for your time.

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.