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The Income Based Repayment Program for Student Loans (IBR)


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Disadvantages of the Income Based Student Loan Repayment Program (IBR)
There are two primary disadvantages to the Income Based Student Loan Repayment Program. One is simply a hassle, while the other could hypothetically cost you thousands of dollars.

IBR Disadvantage #1 - Increased Interest Over the Life of the Loan
Perhaps the biggest drawback to the IBR program is that the lower monthly payments do not pay down a borrower's loan balance as fast. This leads to more interest being added to the account each month, which in turn extends the amount of time it takes to pay it off. In other words, when you do the math, the IBR program could actually end up costing you far more than you save.

Graduates considering the IBR program should look at the total costs over the life of the loan under both the IBR and other repayment programs. Graduates who have higher levels of disposable income and who will not qualify for the 10-year loan forgiveness provision should consider sticking with the traditional repayment plan.

IBR Disadvantage #2 - Annual Paperwork
For those graduates hoping to lock in a low rate under the IBR program prior to their income going up, there's bad news. Graduates actually have to verify their income every year under the IBR program, which means the payment will be adjusted upward to take into account a rising income.

One potential pitfall will be for graduates who have a high income year followed by a low income year. In this case, they may have a higher than tolerable payment locked in during a year when their income may not be able to support it.

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