If you are working for the government or for a non-profit organization, you will also want to review the Public Service Loan Forgiveness plan as part of a full and complete approach to managing your debt and obtaining loan forgiveness over a given set of time.
If you don't have a lot of time, just review the Income Based Repayment plan rules but keep in mind that you could be making a decision without all of the information.
Income Based Repayment started on July 1st 2009 (20 U.S.C. 1098e(d)(1)(E) & C.F.R. 685.221) (and for Federal Family Education Loans; 20 U.S.C. 1098e & C.F.R. Section 682.215).
Income Based Repayment provides loan forgiveness after 25 years unless you took out your federal loan on or after July 1st 2014 (Pub. L. No. 111-152. Section 2213, 124 Stat. 1029 (March 30th 2010)) in which case you could obtain loan forgiveness after 20 years.
Under 34 C.F.R. 685.221(f)(1), you will need to have repayment conditions consistent with at least one of the following:
- Payments of zero OR reduced monthly payments because you have been determined to have a partial financial hardship.
- When you stopped making payments under IBR and/or no longer had a partial financial hardship, made reduced monthly payments
- Made payments under a repayment plan that were not under the amount you would have been required to pay under the Standard Repayment Plan.
- Made payments based on the Standard Repayment Plan in effect at the time you first selected IBR based on the total loan balance
- Qualified and made Income Contingent Direct Loan payments
- Utilized an Economic Hardship Deferment (34 C.F.R. Section 682.15(f), Section 685.221(f) for up to three years)
For FFEL borrowers, a special IBR form was provided as part of a Dear Colleague Letter: GEN-10-11 (June 17, 2010)
Be sure to stay on one of these six characterizations while making payments over the 20 year period in order to qualify for loan forgiveness. 34 C.F.R. Section 685.221(f)(2)(ii)
If you have a Parent Plus Loan and consolidate with the Federal Direct Loan Program, the consolidated loan will become ineligible for Income Based Repayment. 34 C.F.R. 685.221(a)(2)
A Parent PLUS borrower may decide to leave the Parent PLUS loans out of a consolidation with other loans in order to keep the consolidated loan potentially eligible for IBR. 34 C.F.R. 685.208(a)(4)(i)
If your student loan payment is greater than 15% of the difference between your Adjusted Gross Income (from your tax return) and 150% of the federal poverty level for your state then you can potentially be determined to have a partial financial hardship. This includes your spouse's income. 34 C.F.R. 685.221(a)(4)
If you took your loan out on or after July 1st 2014, the calculation uses 10% of the difference. Pub. L. No. 111-152, Section 2213, 124 Stat. 1029 (March 30th 2010)
If you have a joint consolidation loan with your spouse, you should be able to repay under IBR.
When calculating a partial financial hardship, you would use all loans potentially eligible for IBR. 34 C.F.R. 685.221 (a)(4)(i)
When calculating 150% of the federal poverty level for your state and family size, you would include children if you provide greater than half of their support. It doesn't matter who has custody and/or who claims the child for income tax purposes. 34 C.F.R. 685.221(a)(3)
The ten year Standard Repayment Plan is based on the greater of the amount due when yo entered repayment or when you selected IBR. 34 C.F.R. 685.221(a)(4)(i)
Adjusted Gross Income (AGI) is a tax concept. If you have AGI reduced by IRA contributions, then obviously your AGI would be lower and help you potentially qualify for income based repayment.
Both you and your spouse's income will be used (from Adjusted Gross Income) if you filed jointly, as of July 1st 2010. 34 C.F.R. 685.221(a)(4)(ii)
The total of both of your loans (or all of your loans) will also be used in the calculation if you file jointly with your spouse.
If you filed under the status married filed separately, then your income alone would be used in the determination. 34 C.F.R. 685.221(a)(4)(i)