Under the IBR and Pay As You Earn plans, your calculated monthly payment amount may not cover all of the
interest that accrues on your loans each month (this is called negative amortization). In this situation, the
government will pay the remaining unpaid accrued interest that is due each month on your subsidized loans
(including the subsidized portion of a consolidation loan) for up to three consecutive years from the date you
begin repaying your loans under the IBR or Pay As You Earn plan.

For example, if the monthly interest that accrues on your subsidized loans is $40, but your monthly IBR or
Pay As You Earn plan payment covers only $25 of this amount, the government will pay the remaining $15.

You are responsible for paying all of the interest that accrues on your unsubsidized loans, as well as all of the interest that accrues on your subsidized loans after the end of the three-year interest subsidy period. Interest that’s not covered by your monthly payment will continue to accumulate and will be capitalized (added to your loan principal balance) if you no longer qualify to make payments based on income, or if you leave the IBR or Pay As You Earn plan.

The interest subsidy benefit for subsidized loans applies only for the first three consecutive years after you
begin repayment under the IBR or Pay As You Earn plan. Periods of economic hardship deferment are not
included in the consecutive three-year period, but periods of any other type of deferment or forbearance are
counted.

For example, if you receive the interest subsidy benefit for your first year of repayment under the IBR or Pay
As You Earn plan, and then receive an economic hardship deferment for the next two years, you would still
have two consecutive years of remaining eligibility for the interest subsidy benefit when the economic
hardship deferment ends. However, if instead of receiving an economic hardship deferment, you return to
school and receive an in-school deferment for two years following your first year of repayment under the IBR
or Pay As You Earn plan, you would have no remaining eligibility for the interest subsidy benefit at the end of
the deferment period.

For more information go to the Income-Driven Repayment Plans: Frequently Asked Questions Website