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Deferment/Income Based Repayment/Forbearance

Deferment

Deferment is a postponement of repayment under various, specific circumstances. Keep in mind that you are responsible for the interest during deferment. You can pay the interest during the deferment period, or the loan holder can capitalize the interest when the deferment ends. If you return to school at least half-time before the grace period ends, you may defer loan repayment while you are in school, and you will be entitled to a full grace period when you terminate enrollment or drop below half-time enrollment status. In most cases, you are not granted a deferment automatically. You must formally request one through the procedures your loan holder has established.

Income Based Repayment

Income Based Repayment (IBR) is a new repayment plan for the major types of federal loans made to students. Under IBR, your required monthly payment is capped at an amount that is intended to be affordable based on your income and family size.

What federal student loans are eligible to be repaid under an IBR plan? Any Stafford, Grad PLUS or Consolidation loan made under either the Direct Loan or FFEL program is eligible for repayment under IBR, EXCEPT loans that are currently in default, parent PLUS Loans, or consolidation loans that repaid a parent PLUS Loan. The loans can be new or old, and for any type of education (undergraduate, graduate, professional, job training).

Who is eligible for IBR?You may enter IBR if your federal student loan debt is high relative to your income and family size. While your lender will perform the calculation to determine your eligibility, you can use the Department’s IBR calculator to estimate if you would likely benefit from the IBR plan. It looks at your income, family size, and state of residence to calculate your IBR monthly payment amount. If that amount is lower than the monthly payment under a 10-year standard repayment plan, then you are eligible to repay your loans under IBR. See below for a more detailed description of how IBR eligibility is determined.

What are the benefits of IBR?

• PAY AS YOU EARN - Under IBR, your monthly payment amount will be less than the amount you would be required to pay under a 10-year standard repayment plan, and may be less than under other repayment plans. Although lower monthly payments may be of great benefit to a borrower, these lower payments may result in a longer repayment period and additional interest.

• INTEREST PAYMENT BENEFIT - If your monthly IBR payment does not cover the monthly interest that accrues on the loans, the government will pay your unpaid interest on Subsidized Stafford Loans (either Direct Loan or FFEL) for up to three consecutive years from when you first enter IBR repayment. After three years, and for all the other types of loans, interest that accrues will be capitalized (added to the loan principal on which future interest is calculated) when the borrower no longer is eligible for an IBR repayment amount.

Under IBR, the amount an eligible borrower would repay each month is based on the borrower’s Adjusted Gross Income (AGI) and family size. The annual IBR repayment amount is 15 percent of the difference between the borrower’s AGI (or an alternate income amount) and 150 percent of the Department of Health and Human Services Poverty Guidelines, adjusted for family size. That amount is then divided by 12 to get the monthly IBR repayment amount. If that amount is higher than the 10-year standard repayment amount on the borrower’s loans, then the borrower’s required payment is the standard amount. The repayment amount under a 10-year standard plan is calculated based upon the total amount borrowed and the applicable interest rate applied over 10 years. (Unlike the IBR plan, the repayment amount under a 10-year standard plan is not based on your annual income.)

Forbearance

If you are unable to meet your repayment schedule there are options. If you are not eligible for deferment, you might be granted forbearance for a limited and specified period of time. Forbearance is when your payments are temporarily postponed or reduced. Like deferment, you must apply for forbearance with your loan holder and wait until you are notified of approval before changing your repayment schedule. You might have to provide certain documentation to support your request.

You may be granted forbearance if you are:

Obligated to make payments on certain federal student loans that are equal to or greater than 20 percent of your monthly gross income.
Unable to pay due to poor health or other unforeseen personal problems.
Serving in a medical or dental internship or residency.
Serving in a position under the National Community Service Trust Act of 1993 (forbearance can be granted for this reason for a FFEL Stafford Loan, but not for a PLUS Loan).

For other conditions, please contact your loan holder.