Trends and Issues

Policy potpourri

Q.: What's the difference between the new Income-Based Repayment (IBR) plan and Income-Sensitive Repayment (ISR) plan?

A.: Both repayment plans use the borrower's income to determine the monthly payment amount. However, there are a number of unique differences as noted below:

• Monthly payment amount is based on:
  • For IBR — the borrower's adjusted gross income (AGI) in relation to the U.S. Department of Health and Human Services' poverty guideline for his or her family size.
  • For ISR — the borrower's "expected monthly income"; ISR does not consider the borrower's family size nor applicable poverty guideline.
• Maximum repayment term:
  • For IBR — can exceed 10 years (after 25 years of qualifying payments any remaining balance and accrued interest are forgiven).
  • For ISR — 10 years. However, when the decreased monthly payment amount prevents the borrower from repaying within the maximum repayment term, the lender must grant up to five years of forbearance.
• Initial qualification to enter repayment plan:
  • For IBR — the borrower must have a partial financial hardship (PFH), which occurs when the annual payment amount for all of the borrower's eligible loans — as calculated under a standard 10-year repayment plan — exceeds 15 percent of the difference between the borrower's AGI and 150 percent of the poverty guideline for the borrower's family size. Check out TG's IBR calculator to help borrowers determine if they qualify for IBR.
  • For ISR — the borrower must have sufficient income to establish a monthly payment amount that will repay the loan within the 10-year maximum repayment timeframe and the lender must make sure that no single payment is more than three times greater than any other payment, including payments from other repayment plans; these requirements make it much more difficult to qualify for ISR.
• Additional IBR features:
  • For as long as the borrower has a PFH, his or her monthly payment will not exceed 15 percent of the difference between his or her AGI and 150 percent of the poverty guideline for his or her family size; ISR does not have such a threshold.
  • The borrower's calculated monthly payment amount may be $0; a $0 payment amount is not permitted under ISR.
  • For each subsidized Stafford loan, or the portion of a Consolidation loan that consists of subsidized Stafford loans, repaid under IBR, ED will pay the unpaid, accrued interest amount for up to three years from the established repayment period start date; this subsidy is not available under ISR.

More information
See Shoptalk Online edition 510 for more IBR details.

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