Hi Heather,
Thank you so much for being such a great resource! 

I will graduate from law school in May, and I’m hoping to put any monetary graduation gifts towards my student loans (of which there are legion…).  How does that affect IBR?  Does the total loan amount go down, making the payments lower or does the number of payments decrease with the amount remaining the same?

Also - is there any penalty for paying off loans early? 

Thank you in advance for any information you can provide!

Eileen

You are welcome!

There is no pre-payment penalty.  IBR monthly payment amounts are based on Adjusted Gross Income and family size, NOT the loan balance.  The loan balance does matter in terms of whether the borrower has the required Partial Financial Hardship to choice IBR.  If a borrower sends more money than what is due, the due date will be postponed by the number of full monthly payments paid, UNLESS the borrower directs otherwise IN WRITING.  Also be aware that if a borrower is in IBR, payments are directed first to any unpaid interest, then collection costs (if any), and finally principal.