Income-Based Repayment (IBR) and IBR for new borrowers are two very different federal student loan repayment plans.
The two IBR plans have different monthly payments, forgiveness timelines, and eligibility requirements.
I’ll explain why these two plans exist and how borrowers can determine the best option for their personal circumstances.
IBR and IBR for New Borrowers: Federal Student Loan Income-Driven Repayment Plans
Over the years, the federal government has made an effort to make student loan repayment more manageable. For borrowers, this is a huge positive.
However, the downside of the ongoing efforts to assist borrowers is that many income-driven repayment (IDR) plans have been created over the years. IDR isn’t a specific repayment plan. Instead, it describes a broad category of federal repayment plans.
To understand the differences between IBR and IBR for new borrowers, it might be helpful to see how they fit in the context of the other federal repayment plans.
The federal government created the IDR plans in this order:
- Income-Contingent Repayment (ICR) – This was the first Income-Driven Repayment plan.
- Income-Based Repayment (IBR) – IBR was created to give borrowers lower monthly payments than the ICR plan.
- Pay As You Earn (PAYE) – When PAYE was created, it again lowered monthly payments for borrowers.
- Revised Pay As You Earn (REPAYE) – The goal behind REPAYE was to help borrowers who were not eligible for the PAYE plan.
- IBR for New Borrowers – IBR for new borrowers is an updated version of IBR, with lower monthly payments and better forgiveness terms.
It’s worth noting that not all loans and not all borrowers qualify for the above repayment plans. There are small details separating each option that can make a big difference for borrowers. The idea behind sharing the timeline is to provide a broad perspective on how the plans fit together.
Monthly Payments on IBR and IBR for New Borrowers
Arguably the most significant difference between the two repayment plans is the monthly bill.
IBR charges borrowers 15% of their monthly discretionary income. IBR for new borrowers only charges 10% of the monthly discretionary income. Of all the federal student loan repayment plans, IBR for New Borrowers offers the lowest monthly payment.
To see what your monthly payment would be on each plan, visit The Department of Education’s Loan Simulator. Borrowers can see what their monthly payments would be on all repayment plans and examine various forgiveness options.
Income-Based Repayment and Student Loan Forgiveness
Both IBR plans qualify for student loan forgiveness.
There are two main types of forgiveness that borrowers should consider:
Public Service Loan Forgiveness (PSLF) – Borrowers working for PSLF eligible employers can have their student loans forgiven after ten years worth of payments on both IBR and IBR for New Borrowers.
Income-Driven Forgiveness – All borrowers on Income-Driven Repayment plans are eligible to have their debt forgiven after a certain number of years. On traditional IBR, borrowers must make payments for 25 years to earn forgiveness. Borrowers on IBR for New Borrowers can achieve forgiveness after just 20 years. This distinction is one of the key differences between the two plans.
Borrowers working towards either form of forgiveness should carefully review all requirements and discuss them with their loan servicers.
Borrower Eligibility Requirements
The key difference between the two varieties of IBR is the “New Borrower” designation.
All federal student loan borrowers are eligible for the original IBR plan.
New borrowers who took out their first student loan after July 1st, 2014 are eligible for IBR for New Borrowers.
Borrowers who had student loans from before July 1st, 2014, should investigate the Pay As You Earn plan and the Revised Pay As You Earn plan. Both PAYE and REPAYE also charge borrowers 10% of their discretionary income.
IBR and IBR for New Borrowers Similarities
The two versions of IBR are identical in many important facets.
- Spousal Income – Borrowers on either plan may file taxes separately so that their spouse’s income isn’t included in student loan payment calculations.
- Tax on Forgiveness – Borrowers who earn PLSF will not be taxed on the forgiven debt. Borrowers who qualify for forgiveness after 20 or 25 years will be taxed on the amount forgiven.
- Eligible Loans – Most federal student loans are eligible for both plans. However, certain federal student loans not eligible for either form of IBR. These notable exceptions are Parent PLUS loans, FFEL loans made to parents, and consolidation loans that paid off parent loans. Additionally, Perkins loans are not eligible, but they can become eligible for both repayment plans if they are consolidated.
Deciding between IBR and IBR for New Borrowers
IBR for New Borrowers is the better repayment plan of the two. It has lower monthly payments and forgiveness arrives sooner.
Unfortunately, the “New Borrower” requirement will prevent many federal borrowers from qualifying for the preferred version of IBR.
Even though IBR for New Borrowers is clearly the better option between the two plans, it isn’t necessarily the best IDR plan. Borrowers should also carefully consider both PAYE and REPAYE. For those with larger balances and smaller incomes, the REPAYE interest subsidy may make REPAYE better than either version of IBR.
