Income-Based Repayment (IBR)

Income-Based Repayment is a federal student loan repayment plan under which the borrower's monthly payment is calculated as a percentage of income above a multiple of the federal poverty guideline for the borrower's family size, and any balance remaining after a set number of qualifying payments is canceled. The regulation names it "The Income-Based Repayment (IBR) plan" at 34 CFR 685.209(a)(2), and its statutory authority is section 493C of the Higher Education Act, codified at 20 USC 1098e and headed "Income-based repayment". That statutory home is the single most consequential fact about the plan. Pay As You Earn, REPAYE and Income-Contingent Repayment are regulatory plans built on the income-contingent authority at 20 USC 1087e(e), which Public Law 119-21 struck out effective July 1, 2028. Income-Based Repayment stands on a different section, so the repeal does not reach it and the plan has no sunset.

Two formulas, assigned by dates. Under 34 CFR 685.209(f)(3) a borrower who is not a "new borrower" pays the lesser of 15 percent of discretionary income divided by twelve or the ten-year standard amount, and reaches cancellation after 300 qualifying payments over at least 25 years. A borrower who is a new borrower pays 10 percent on the same basis and reaches cancellation after 240 payments over at least 20 years (685.209(f)(2), (k)(1), (k)(2)). The two versions are commonly called 2007 IBR and 2014 IBR after the years the terms took effect. Discretionary income for this plan means income above 150 percent of the applicable federal poverty guideline (685.209(b)(4)(ii)), and the statute sets the default at 15 percent above that line while 20 USC 1098e(e) substitutes 10 percent and 20 years for a new borrower with a loan made on or after July 1, 2014 and before July 1, 2026.

The new-borrower definition has two routes and only one of them carries a trap. 34 CFR 685.209(b)(13)(ii) defines a new borrower for this plan as someone who either has no outstanding Direct Loan or FFEL balance before July 1, 2014 and obtains no new loan on or after July 1, 2026, or who has no outstanding balance on the date they obtain a loan after July 1, 2014 but before July 1, 2026. The second route is the one most borrowers who began after 2014 qualify under, and it attaches no condition about future borrowing. The first route does: a borrower relying on it can lose the better formula on loans they already hold by taking out a new federal loan. Either way, a loan made on or after July 1, 2026 cannot be repaid under this plan at all (685.209(d)(5)), and taking one requires the borrower to repay every outstanding loan under the same plan selected from the newer two-plan menu (20 USC 1087e(d)(7)(C)).

The standard-payment ceiling is the plan's distinguishing feature and it is rarely mentioned. Both formulas are written as the lesser of a percentage of discretionary income or what the borrower would have paid on a ten-year standard plan, computed on the eligible balances and interest rates as they stood when the borrower entered the plan. So the payment is capped, and a borrower whose income rises sharply does not keep paying more indefinitely. The Repayment Assistance Plan, which is the plan most legacy borrowers are being moved toward, has no such ceiling: it takes a percentage of all adjusted gross income on a sliding scale. For a borrower whose income is high relative to the balance, that difference matters more than the headline percentages do.

Two gates on getting in. Only Direct Loans made before July 1, 2026 may be repaid under the plan (685.209(d)(5)). And 685.209(c)(3)(ii) is a one-way door: "A borrower who has made 60 or more qualifying repayments under the REPAYE plan on or after July 1, 2024, may not enroll in the IBR plan." There is no cure for that in the regulation. Enrollment also requires the borrower to elect to have the aggregate monthly payment recalculated so that it does not exceed the applicable amount on entry (685.209(c)(3)(i)).

What counts toward the forgiveness timeline, and this is where the plan is unusually generous. A month counts if the borrower makes a payment under an income-driven plan other than the Repayment Assistance Plan, and it also counts if the borrower's payment obligation for that month is $0 (685.209(k)(4)(i)(A)). A calculated payment below $5 is set to $0, while one from $5 to under $10 becomes $10 (685.209(g)(1)(iii)). For this plan only, 685.209(k)(5) goes further: a qualifying payment made on a loan in default counts, and so does an amount collected through administrative wage garnishment or the Treasury Offset Program that is equivalent to what the borrower would have owed under the plan. Payments made under Pay As You Earn or Income-Contingent Repayment on or before June 30, 2028 also count toward this plan's total (685.209(k)(4)(i)(B)), which is what allows a borrower moving off a closing plan to carry credit across. Months spent in the forbearance that accompanied the SAVE litigation are a different matter: no payment was required or made, and that forbearance is not among the deferments and forbearances the regulation credits, so those months did not build credit. The Department has said in its own rulemaking that payments made under SAVE or REPAYE, or during the associated forbearance, on or after August 2024 do not count toward this plan's forgiveness. A borrower who did make payments during that period should have their count confirmed rather than assume either answer.

Defaulted loans, and the route out. 34 CFR 685.209(c)(1) bars defaulted loans from income-driven plans except under paragraphs (d)(2) and (d)(4), which are Income-Based Repayment and the Repayment Assistance Plan. So this plan is one of only two a defaulted loan can enter. Separately, 685.209(n) provides that the Secretary will no longer consider a borrower in default if the borrower supplies the information needed to calculate a payment, that payment works out to $0, and the income used includes the point at which the loan defaulted.

Interest, recertification and the end. For the first three consecutive years in the plan the Secretary does not charge unpaid accrued interest on the borrower's Direct Subsidized loans, excluding any months of economic-hardship deferment (685.209(h)(2)); interest on unsubsidized loans accrues in full throughout. Unpaid accrued interest capitalizes when the payment becomes the standard-cap amount and when the borrower leaves the plan (685.209(j)(2)). Income and family size are certified annually, and 20 USC 1098e(c)(2) directs the Secretary to establish procedures that recertify from tax return information without further action by the borrower, with a right to opt out. Missing a recertification is expensive rather than fatal: the payment becomes the ten-year standard amount until the documentation is filed (685.209(l)(9)(i)). Cancellation itself requires no application, because 685.209(l)(11) directs the Secretary to track progress and forgive qualifying loans "without the need for an application or documentation from the borrower." A married borrower who files a separate federal return has the payment computed solely on their own student loan debt and adjusted gross income (20 USC 1098e(d)). And cancellation at the end of the term is generally taxable income again for discharges after December 31, 2025, which is the sharpest remaining difference between this plan's forgiveness and public service loan forgiveness.

The borrower elects the plan, certifies income and family size or authorizes the Department to obtain the tax information, and the servicer applies the formula. The resulting payment holds for twelve months. Each qualifying month is credited toward 240 or 300, and the balance is canceled when the count is reached.

Which formula applies is settled by dates, not by preference. A hypothetical example resolving eligibility rather than an amount. Priya's first federal loan was disbursed in 2016 and she had no earlier balance, so she had no outstanding balance on the date she obtained a loan after July 1, 2014 and before July 1, 2026. She is a new borrower for this plan, which puts her on 10 percent of discretionary income with cancellation at 240 payments. Her colleague Dev has carried a balance since 2011. He fails the first route, because he had an outstanding balance before July 1, 2014, and he fails the second, because he had a balance on the date of every later loan. He is on 15 percent with cancellation at 300 payments. Two people with similar debt and similar salaries are on materially different terms, and neither of them chose it.

The ceiling, with arithmetic. A second hypothetical. Marcus owes $18,000, and suppose the ten-year standard payment on that balance works out to $210 a month. In a year when his income is low, 15 percent of his discretionary income divided by twelve comes to $70, so he pays $70. Several promotions later the same calculation produces $340. Because the formula takes the lesser of the two figures, his payment does not go to $340. It stops at $210, the ten-year standard amount fixed when he entered the plan, and it stays there however high his income goes. On the Repayment Assistance Plan the equivalent calculation has no ceiling at all, so the same promotions keep raising the payment. Figures are illustrative.

One consequence worth noting: once the payment is the ceiling amount rather than the income-based amount, the loan is amortizing on a ten-year schedule, so a borrower in that position is generally paying the balance off rather than heading for cancellation.

Pros

• The payment tracks income, so it falls in a bad year instead of pushing the borrower toward default.
• The payment is capped at the ten-year standard amount, which no newer plan matches.
• It is the only legacy income-driven plan open to new enrollment and the only one with no sunset.
• A $0 payment counts toward the forgiveness timeline, so a very low income year is not a lost year.
• A defaulted loan can enter it, and garnished or offset amounts can count toward the total, which is unique among the plans.
• Cancellation requires no application; the Department is directed to track the count and forgive.

Cons

• Cancellation is generally taxable income again for discharges after 2025, so a large forgiven balance can produce a real tax bill in a single year.
• A payment smaller than the month's interest lets the balance grow, and the subsidy on unpaid interest reaches only subsidized loans and only for three years.
• Which formula applies is decided by borrowing dates, so two similar borrowers can face 15 percent over 25 years and 10 percent over 20.
• Sixty or more qualifying REPAYE payments after July 1, 2024 bar enrollment permanently, and nothing in the regulation cures it.
• Loans made on or after July 1, 2026 cannot use the plan, and taking one can pull an existing balance into the newer two-plan menu.
• Missing the annual recertification raises the payment to the ten-year standard amount until it is filed.
• Twenty to twenty-five years of payments means far more total interest than a ten-year plan, even when each month is easier.