Income-Based Repayment (IBR) Guide

Income-Based Repayment (IBR) Guide

Income-Based Repayment or “IBR” is one of four income-driven repayment plans designed for borrowers with high federal student debt balances, as compared to their income.

Income-Based Repayment (IBR): is the staple income-driven repayment plan for borrowers. Here’s everything you need to know about it:

IBR Background

As the cost of college started to rise, so did the need for a more affordable repayment option. Higher student loan balances meant higher monthly payments, especially on a balanced-based repayment plan like the 10-year Standard.

Paying back student loans would be unaffordable.

Instead of using student loan balances and interest rates to determine monthly payments, income-driven repayment plans like IBR would use a percentage of a borrower’s income.

IBR Plan Eligibility

Income-Based Repayment (IBR) was designed to help students with higher federal student loan balances relative to their income and family size.

To be eligible for IBR, you have to demonstrate financial need. It’s available to student borrowers (not parents) with either Direct or FFEL loans.

The fact that you need to qualify for IBR is a blind spot for busy professionals.

REPAYE ends up being the repayment plan of choice due to the lower monthly payments and the ability to earn forgiveness. However, REPAYE payments can end up higher than those on a 10-year Standard plan as your income increases.

Your monthly payment must be less than what you would pay under the 10-year Standard repayment plan to qualify for IBR. A mistake could end up with a much more accelerated repayment schedule.

Messing up will most certainly eliminate your chance to earn forgiveness.

Eligible Loans: Direct Loans (Subsidized and Unsubsidized), Direct Graduate PLUS loans, Direct Consolidation loans.

What are IBR payments like?

Income-Based Repayment (IBR) is one of four income-driven repayment plan options (IBR, ICR, PAYE, & REPAYE).

Income-driven repayment plans calculate your monthly payment by using a percentage of your “discretionary income” whereas balanced-based programs (like 10-year Standard) calculate your payments based on your student loan balance and interest rate.

In short, IBR makes payments more manageable. It keeps payments lower while simultaneously allowing borrowers to earn forgiveness.

IBR will cap monthly payments for loans disbursed before July 1, 2014, at 15 percent of your discretionary income. Any balance remaining after 25 years will be forgiven.

Loans disbursed on or after July 1, 2014, will use a newer version of IBR. Often called, “new IBR,” this program caps monthly payments at 10 percent of your discretionary income (instead of 15 percent). Any balance remaining after 20 years of repayment will be forgiven.

As you can see, the new IBR is much more favorable but only applies to newer borrowers.

Upside to Income-Based Repayment (IBR)

There are many upsides to the Income-Based Repayment (IBR) plan. From affordable monthly payments to the ability to earn forgiveness, it’s easy to see why it’s become a staple repayment option. While there are a lot of upsides, they all vary based upon the type of work you do, how much you make, to whether you plan on getting married.

Here are just a few remarkable benefits to the program that our clients enjoy:

  • Affordable monthly payments. IBR uses a percentage of your income to determine your monthly payment. This makes monthly payments more manageable to early-career professionals.
  • Ability to earn forgiveness. While earning forgiveness through an income-driven repayment plan like IBR is taxed as income, not having to pay a six-figure student loan balance takes the cake. With IBR, you earn forgiveness in 20 to 25 years.
  • IBR is easier to understand. Out of all your income-driven repayment options, IBR is the most straightforward. You’ll never find yourself in a sticky situation.
  • PSLF friendly. If you have the right kind of loans and the right employer, you can earn forgiveness through PSLF while on IBR. It might be a more desirable repayment option if you’re married.
  • Marriage-friendly. With IBR, you can rest assured that you can invite Uncle Sam to the wedding without much consequence. You can control your monthly payments depending on how your file your taxes (Married Filing Separate or Married Filiing Jointly).

The Downside of Income-Based Repayment (IBR)

There are pros and cons to every repayment plan. Income-Based Repayment (IBR) is no different. Here are some hurdles I’ve seen people have with the program.

  • IBR is a long-term strategy. Because monthly payments are typically lower, you’ll be paying back these loans for a lot longer. That means the Net Cost of your student loans will be substantially higher than if you were aiming to pay it off —unless you’re shooting for forgiveness.
  • A potential hefty tax bill. Unless you’re trying to earn forgiveness through PSLF, forgiveness through income-driven plans like IBR is taxed as income. Earning forgiveness through this method takes careful planning because I’ve seen clients with potential tax bills as high as $60,000.
  • Negative amortization. Your balance can go up despite making on-time monthly payments. Some people’s payment doesn’t cover the interest that accrues each month. This creates an “Outstanding Interest” balance that will periodically get added to your balance.

You need to certify your income. Income-driven repayment plans like IBR require that you submit documentation to prove your income. If you forget, your payments will match the 10-year Standard payments. That could double your bill for that month.

Switching to IBR isn’t a guarantee; you need to qualify. If you’re on REPAYE, your monthly payments can exceed the 10-year Standard repayment plan.

If that happens, you could find that your payments may become unaffordable and your only other repayment option would be the 10-year Standard plan.


Income-Based Repayment (IBR) is a staple repayment option. It ties your monthly payments to a percentage of your income, and for many that make those payments more manageable.

Unfortunately, there is no “one size fits all” or a “set it and forget it” repayment option. Major life events such as marriage, divorce, children, change of employer, or changes in income will affect your repayment strategy, requiring you to re-evaluate.

Identifying your most ideal repayment strategy takes a lot of thinking, planning, and oversight.

At Clear Path Financial Planning, we import student loan data directly from the source —the National Student Loan Data Systems database. We can explain the pros and cons of various strategies as it pertains to your unique situation.

Now I want to hear from you. Are you wondering if IBR is for you? If you could get one question answered, what would it be?

Enjoy Your Life. Let us help.

There are more important things in life than money and stressing over student loans. Focus on your family, your hobbies, your spiritual walk —most certainly, your health.

Let us worry about managing your money, student loans, and your long-term plan.

8 Questions for Hiring Student Loan Repayment Help

Student loans can make our financial life a little more complicated. Especially when you have over $100,000 in student debt. Sooner or later you’re going to find that you need help with student loan repayment strategies.

Most likely, your balance isn’t dropping as fast as you’d like —or worse, it’s going up. We go through major life transitions like getting married and starting a family.

How do all these events affect our student loan repayment? Who do you turn to with questions about your student loans? There are so many so called “student loan experts” online.

While I am a financial planner that specializes in professionals, I’m not everyone’s cup of tea. And I don’t try to be. If I’m going to invest my time into creating a plan for a client, I want them to stick with me for the long-term.

To help you identify a planner or advisor that’s right for you, I put together some questions for you to ask.

Here are 8 Questions for Hiring Student Loan Repayment Help:


1. Do you provide financial advice?

I learned that many student loan planners don’t actually provide financial advice with student loan repayment.

Surprising, right? They only serve in an “educational capacity.”

Hiring Student Loan Repayment Help

How it’s possible to deliver valuable advice on student loans in an educational capacity?

 That means the advice isn’t tailored to your unique financial circumstances. That defeats the whole purpose of paying for student loan repayment help.

 In my financial practice, we run many financial calculations. We’re trying to identify the best student loan repayment strategy for our clients.

In my firm, Clear Path Financial Planning, we create and evaluate multiple scenarios based on each of our client’s unique situations. If forgiveness is likely, we’ll attempt to maximize that benefit. We calculate the projected tax bill and provide a savings strategy to pay it.

Isn’t the reason why you hire a student loan repayment professional is for financial advice? Make your planner work for their money. Ask for financial comparisons of all your repayment options.

After mystery shopping a few student loan planners, I’m starting to see a trend. Many have conflict of interests. And this leads us to Question No. 2.


2. How do you get paid? Are you compensated through third party advertisers?

As direct as the question may be, it’s very important to know the answer. Conflict of interests are present in any business relationship. You want to be aware of them if they do exist.

If you feel the question is too confrontational, it’s possible to avoid the question. You can always dig through their website for a “Disclosure” statement. If the planner accepts affiliate money from advertisers, it will mention it there.

Hiring Student Loan Repayment Help

Why is this a problem? Money influences people, even those with good intentions. There’s no way of knowing why a recommendation is being made.

Student loan blogs are very helpful but just educational. The ultimate goal of the blog is to get you to refinance through an affiliate that will pay them for the traffic. Be cautious of anyone that quotes interest rates….

This isn’t to say that affiliate marketing planners don’t offer good advice. It’s just draining having to question their motive.


3. What deliverable can I expect?

Nothing ruins a relationship more than unmet expectations. Before you hire your planner, make sure that you share your expectations with them. And know exactly what you are paying for.

If you’re expecting a detailed financial plan with graphs and charts that compare all your repayment options, make sure that your planner will deliver that. I have mystery shopped a number of these planners. Many don’t have access to sophisticated financial software. Instead they use spreadsheets that they’ve created.

Spreadsheets can be problematic. Especially if the planner created it or worst —someone else. It can be difficult to illustrate and compare future scenarios in a spreadsheet.

Also, student loan legislation and tax laws are constantly changing. Have you ever tried creating or updating complex formulas in Microsoft Excel? Not all errors result in a ERROR: @#$%^^. Small errors can result in undetectable changes in projections. That means the math is wrong.

I like spreadsheets. They’re great tools but don’t make for a great financial plans. Not everybody wants to see tables upon table of numbers projecting out over 25 years. Give me a financial plan with colorful illustrations. I want to see the financial impact of one student loan repayment strategy over another.


4. How Long Will It Take to Complete This Project?

It’s also important to establish expectations around the process and communication.

If you’re waiting on this student loan repayment analysis to determine how to file your taxes, share that. The planner will have to run all repayment options as filing jointly and separately. That can take some time.

Also, not everybody communicates the same way. I find that some people don’t respond to phone calls and voice messages. But they’ll respond to a text message or email faster.

It’s important that if you or your planner expect a speedy response, that it’s clearly communicated.


5. What other services do you provide?

While your student loans might be top of mind, it’s only one area of your financial life. Start thinking about your student loans as part of your overall financial strategy.

Thinking beyond today is the only way to create a tomorrow you love.

It’s important that your planner can add value beyond this student loan analysis.

A financial planner will not only prepare a financial plan for your student loans. They’ll also create a savings plan strategy. They’ll help you build your emergency and vacation funds. If you take a financial hit, you’ll have the comfort of knowing you have a cash cushion to break your fall.

 Hiring Student Loan Repayment Help

If you’re going to invest the time and money into a student loan plan, why not ensure you can keep the it going if you want.

6. What kind of clients do you specialize in?

Good financial planners or advisors like to work within a specific niche. This allows them to become the experts in that field.

Many planners that focus on retirement planning and investment management are generalists. They try to work with anyone with money and usually underwhelm their clients. I happen to like working with both public- and private-interest lawyers. They have varied career paths and wide ranges of income. It’s fun to work and socialize with them.

While retirement is important, you’re most likely not planning to retire anytime soon. Find a financial planner that can relate to your stage in life and takes the time to understand you.


7. Do they ask hard questions?

What makes a good financial planner… well, good? Outside of technical knowledge, they ask really good questions.

They ask questions like:

  • Why is money important to you?

  • Why do you spend the way you do?

  • If money wasn’t an issue, what would you do differently?

This shows that the financial planner really wants to know what makes you tick.

These are just a few of my favorite questions. The answers don’t even matter. I’ll throw them away and ask deeper and more meaningful ones.

Questions like these help uncover your financial values —or more accurately, your life values. The best way for you to pay down your student loans, save and invest should be based on your own goals and values. Not your friend’s or anyone else’s goals or values.

A good financial planner will use those answers as a starting point to discover how you really want to spend both your time and money (and spend your time in pursuit of more money, as the case may be).

Learn to judge the advisors in your life by the questions they ask.

8. Are they committed to my success?

“What would have to happen next year or three years from now for you to look back to today and say this was absolutely worthwhile?”

This is my favorite question to ask potential new clients. It may even be my secret sauce. The question is designed to have someone look at their life and identify what needs to change to be happy.

I’m going to take that answer and reverse engineer it into first year agenda for this client. I’m committed to their success.

Find a financial planner that looks ahead to the future. These are the planners that will be more proactive in your life. They’ll help give you direction and that’s what’s going to keep you happy long-term.

The ones that don’t have an agenda only reach out but once a year.


9. What’s your refund policy?

Sometimes life happens. It’s best to know what the terms and conditions for working with this planner.

You might pay for a service only to discover that you need to postpone or cancel the project. A family member could fall ill and you might need to be there for them.

If this happens, it’s likely that your planner may have to refund you. Would you get a full or partial refund?


I want to hear from you

Do you have any student loan questions? If so you can drop it in the comments below or ask me privately. If it’s good enough, I’ll answer it and mention you on my next Q&A Tuesday on TommyTV.


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Trump’s Student Loan Reform — The PROSPER Act

Trump's Student Loan Reform

Today we’re going to discuss President Trump’s Student Loan Reform through the GOP House of Representative’s bill, the PROSPER Act.

Trump's Student Loan Reform
Trump’s Student Loan Reform


Trump’s Student Loan Reform- The PROSPER Act

For years, there has been a concern over the complexity of the federal financial aid system. Today, there are 6 types of federal loans, 9 repayment options, 8 forgiveness programs, and 32 deferment and forbearance options out there. President Trump’s Student Loan Reform attempts to simplify and streamline the system.

The GOP House of Representatives is making a push towards streamlining that system. On November 16th, 2017 they passed a bill called the PROSPER Act. It’s Trump’s student loan reform and stands for “Promoting Real Opportunity, Success and Prosperity through Education Reform”.

 The PROSPER Act is, a one loan, one grant program. It’s not even a new concept. It’s an idea that has been circulating for more than a decade.

 In the event of it’s adoption, this one loan, one grant program would change the student loan system as we know it. It could even influence a student’s choice in college and career.

 Here are some of the changes you can expect to see for new student loan borrowers. If you have any questions or something to add, please leave a comment.


Trump’s Student Loan Reform: Federal ONE Loans

We currently have 6 types of federal loans. Under a one loan, one grant federal aid system, we’ll only be offered one type of federal loan. That’s going to be Federal ONE Loans. It will replace Direct Loans. New student loan borrowers will only have access to Federal ONE Loans through Trump’s student loan reform.

That raises a bunch of questions in of itself. A lot of programs and benefits we have today only with with Direct Loans. Programs like Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) only work with Direct Loans.

The good news is that if you already have Direct Loans, you’ll most likely be able to keep them. If that’s the case, then you’ll still have access to PAYE, REPAYE, and Public Service Loan Forgiveness (PSLF).

Unfortunately, these programs won’t be available to new borrowers. They won’t exist under Federal ONE Loans.

There will also be One Grant and that’s the Pell Grant, which exists today. The PROSPER Act would phase out all federal grant programs and keep just this Pell Grant.


Eliminating Subsidized Stafford Loans

Eliminating Direct Loans also means eliminating Subsidized Stafford Loans. These are Direct Loans currently offered to families with financial need. Subsidized loans help keep your student debt from growing while you’re in school. The federal government pays the interest on these loans during periods of deferment.

Losing this benefit means students that qualify will have more debt upon graduation. Fortunately, it doesn’t affect a lot of students. The average Direct Subsidized Loan for undergraduates is around $3,565. And graduate students can only borrow unsubsidized loans anyway. So this change doesn’t affect them either.

On a positive note, we will no longer have to pay an upfront origination fee to get Federal ONE Loans. Whereas, with Direct Loans all undergraduates have to pay an upfront origination fee of 1.066%. Graduate / Professional PLUS loans have to pay a 4.264% origination fee! Those fees get tacked onto your student loan balance.


Changes to Federal Loan Repayment Programs

There are currently 9 repayment options within the federal student loan program. That’s a lot. Trump’s student loan reform would consolidate those, offering just two options. There will only be the Standard Repayment and Income-Based Repayment (IBR) plans. Both of those exist today. However, they will be a little different with Federal ONE Loans.

Trump’s Standard Repayment Plan. This plan is a level, 10-year repayment plan. Borrowers will have to make 120 equal payments. A borrower with $65,000 in Federal ONE Loans, may have to make 120 payments of $738.06 (assuming a reasonable 6.5% interest).

Borrowers might not be able to afford that right out of college. If that’s the case, the only other repayment option will be the new Income-Based Repayment (IBR) Plan.

Trump’s Income-Based Repayment (IBR) Plan. IBR helps borrowers that qualify to keep their payments affordable. Based on your income and family size, there’s a cap (10% of discretionary income) as to how much a borrower will pay. IBR will also forgive remaining debt, after 25 years of qualifying payments.

Trump’s IBR plan will work similarly, with some differences. Instead of your discretionary income being capped at 10%, the cap will now be 12.5%. Of course, this will cause your payments to be slightly higher. But with Trump’s IBR plan, balance-based forgiveness for undergraduates looks much better than what’s offered today.


Loan Forgiveness Programs

There are a couple of ways to earn forgiveness today with Direct Loans. You can earn it through:

  • Public Service Loan Forgiveness (PSLF).

  • Or you can earn it through an Income-Driven Repayment (IDR) plan. Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) plans all work.

Unfortunately, Public Service Loan Forgiveness (PSLF) won’t be available through Federal ONE Loans. You need Direct Loans to qualify for PSLF. However, you’ll still be able to earn forgiveness through the Income-Based Repayment (IBR) plan.

Forgiveness under Trump’s student loan reform will be a type of balance-based forgiveness. Make “X” years of payments and any remaining balance will be forgiven. Undergraduates can qualify for forgiveness (not PSLF) after 15 years of payments. Graduates can qualify for forgiveness after 30 years.

Note: If you currently have federal direct loans, you’re most likely not going to lose the PSLF benefit. You’ll likely be grandfathered (as long as you keep your Direct Loans).


Student Loan Borrowing Limits

The PROSPER Act would also introduce new and different borrowing limits. This will apply to both graduate and undergraduate students, as well as their parents.

Currently, dependent and independent undergrads are subject to lifetime borrowing limits. The current undergraduate limits are:

  • Dependent Undergraduates. Students can borrow up to $31,000 in federal student loans throughout college.

  • Independent Undergraduates. Students can borrow up to $57,500 as a lifetime cap.

  • The lifetime limit for Direct Subsidized Stafford loans is $23,000.

  • Parents. Parents are able to borrow up to the Cost of Attendenance (COA) (minus any financial assistance).

The PROSPER Act will boost these limits slightly to:

  • Dependent Undergraduates. Students can borrow up to $39,000 (+8,000) in federal student loans throughout college.

  • Independent Undergraduates. Students can borrow up to $60,250 (+2,750) as a lifetime cap.

  • Graduates. Graduate students can borrow up to $150,000 as a lifetime cap ($28,500 per year).

  • Parents. Parents can borrow up up to $56,250 per child (12,500 per year).

  • Subsidized Stafford loans will no longer be available. There will only be one loan — unsubsidized Federal ONE Loans.

Unfortunately, there isn’t a college pre-approval process, like there is with mortgages. Clearly, these new borrowing limits are in response to the out of control student debt. I believe the big issue here is that Graduates can borrow large sums of money up to the Cost of Attendance (COA). Then they can choose an ultra low repayment option under income-driven plans. That was never the intention of Grad PLUS loans.


Is Trump’s Student Loan Reform the best way for simplifying financial aid?

The best answer is… maybe.

On the federal level, the PROSPER Act does address how complicated financial aid is. And, on the surface, that makes sense. But one of the things that makes it so complex is the multiple funding streams that goes into higher education.

There has to be complexity at some level. But it doesn’t need to be on the front-end where the schools and students are. I feel that as long as the new federal financial aid system is flexible enough to allow schools to get families financial aid (without it could be a good thing.

How did the federal financial aid system get so complex? There’s not a practical reason for all the different loans and different loan programs. You need only to understand how Congress works.

Congress is biased to adding. And when they add, they never subtract. So when new programs are added, old ones are never taken away. The advocacy world would make Congress pay dearly if they ever tried to take away any program. Advocates are perfectly fine with having access to more money even if it comes with more complexity. And they will oppose any reduction in benefits if it’s to get simplicity.

That’s the dynamics and politics we have in the United States. We have several loan and grant programs running side-by-side that essentially do the same thing. This is why we have campus-based aid and Pell grants. The same thing with Perkins Loans.

I’m looking forward to see how President Trump’s student loan reform unfolds and evolves. What about you? What concerns or questions do you have about how this effects federal financial aid in the future?


Tommy Martin

Let’s Make This the Best Year Ever

Best Year Ever

Creating the best year ever

I absolutely love kicking off the New Year. Let’s make this the best year ever with New Year’s goals. Personally, it’s a time for me to wind down after a very busy year and holiday season. It’s also a time to reflect upon the previous year, and for me to determine what I want more of in my life–time with friends and family, make new friends, and golf–and consequently, determine what I want less of–stress, anxiety, doom and gloom people, and unexpected financial problems.

It’s also a great time to create new goals. After all, it’s a New Year. But a word of caution. Don’t confuse creating New Year’s goals with a New Year’s Resolution. New Year’s Resolutions are like budgets – they don’t work. New Year’s goals are followed by scheduling success on your calendar!

Instead of going down that traditional road of making a New Year’s Resolution, why don’t you try something new?



I’m a believer and practitioner that progress equals happiness. No matter what you want to achieve, create or experience in your life, making meaningful progress is the only way that you’ll be happy.

I want to share my 2-step process for designing a life of progress -happiness. If you want to better yourself, enhance your relationships, and progress in your business or career, this tool will help.


Step 1: The Brain Dump

We’re going to write down everything that you want to do or experience in the next 12 months. Creating the best year ever doesn’t have to start in January. It can start today.

A “brain dump” is a complete transfer of accessible knowledge from your brain to some other form of storage medium, such as a notepad. You would be surprised at how many people never perform a brain dump. Their brain is in a continuous process of recycling important thoughts. It’s a very draining process that often puts people in a state of panic and stress. Just imagine what you would do to your computer if you never shut it down, or rebooted it. Eventually, it runs out of virtual memory and can no longer run important processes.


Brew your favorite cup of coffee or tea because it’s time to get all those wonderful dreams, goals and to-dos out of your wonderful head and onto a notepad.


Take Action: Write down all the things that you want to experience or achieve in the next 12 months. Grab our free downloadable Brain Dump tool below. It’s what I use in my personal life and business to organize my thoughts, sift through everything, and identify what projects are going to take priority throughout the year.

Watch this episode and design a life you love by completing key tasks that will get you there.


Make this the Best Year Ever



Best Year Ever

I want to hear from you

What’s the number one goal that’s going to help you design a life you love this year? What’s it going to take for you to make this goal a reality? And, how’s it going to make you feel when you actually accomplish it?

Also, do you have a money question? If so you can drop it in the comments below or ask me privately. If it’s good enough, I’ll answer it and mention you on my next Q&A Tuesday on TommyTV.


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