Income-Based Repayment (IBR): How It Works and Who Qualifies

Income-Based Repayment (IBR) is an income-driven repayment plan available for federal student loans. 

Access to the IBR Plan was broadened in the “One, Big, Beautiful Bill Act,” and IBR will be one of only two income-driven repayment options for federal student loans after July 1, 2028. 

IBR caps monthly payments at between 10% and 15% of discretionary income, depending on when you first borrowed. You’ll need to decide by July 1, 2028, if you want to enroll in the IBR Plan, and you’re not in it already. 

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What is Income-Based Repayment (IBR)?

The IBR Plan caps student payments at 10% of discretionary income with forgiveness after 20 years of eligible payments if you first borrowed after July 1, 2014. If you borrowed before that time, payments are capped at 15% of income, and forgiveness comes after 25 years of on-time payments.

Under the IBR Plan, payments will not be more than the amount you would pay on a standard 10-year repayment plan. 

Income-driven plans like IBR are one of the main benefits of federal student loans, along with generous deferment and forbearance options. While private loans sometimes offer a lower student loan interest rate, the lack of income-driven payments and other borrower advantages means choosing a private loan over a federal loan can often be the wrong choice.

IBR is one of several currently available income-driven payment options. However, after July 1, 2028, all of them except IBR are being sunsetted. IBR and a new Repayment Assistance Plan (RAP) will be the only two income-driven plans in place after that. Borrowers in legacy plans will need to switch.

Who qualifies for Income-Based Repayment?

Income-Based Repayment is available for borrowers with:

• Subsidized and unsubsidized Direct Loans
• Direct PLUS Loans made to graduate students
• Direct Consolidation Loans that didn't repay student loans made to parents
• Consolidated Perkins Loans
• Some Stafford and FFEL program loans not made to parents

Under current rules, you also must demonstrate partial financial hardship to sign up for the IBR Plan. The amount you would pay under the IBR Plan must be less than the amount you would pay under the standard 10-year payoff plan. 

You’re likely to meet this requirement if the amount of your federal student loan debt is greater than the annual discretionary income you have. Typically, this is the case if your student debt balance is close to the amount of your annual income.

You’ll need to provide proof of your income (and your parents' income) if you're a dependent undergrad to sign up for the IBR Plan.

However, qualifications are changing after July 1, 2026. After that time:

• Consolidated loans with parent PLUS loans included will be eligible for IBR if the parents enrolled in the Income-Contingent Repayment (ICR) Plan immediately before the IBR Plan. Enrollment is defined as making one full payment under the ICR Plan.
• The partial financial hardship requirement is being eliminated.
• You cannot be a new borrower after July 1, 2026, nor can you have had any new loans disbursed after that date.

These changes can be confusing, but the key thing to remember is that even while most income-driven repayment plans are being phased out for federal loans, you still have options worth considering. 

“​​If you have significant loans, there are still some income-based repayment plans available, and if eligible, you should take advantage of them,” explains Steve Azoury, a chartered financial consultant (ChFC) and owner of Azoury Financial. 

How are IBR monthly payments calculated?

IBR payments equal either 10% or 15% of discretionary income. 

Discretionary income for purposes of calculating IBR payments equals the difference between your annual income and 150% of the poverty guidelines for your state and family size. 

“Learn the rules before you apply for income-based repayment,” Azoury advises. “Income and family size will all impact your repayment plan.”

This formula is not changing after July 1, 2026. Payments will continue to be calculated using the same formula, and monthly payments continue to be capped at the amount your payment would be under the standard plan.

What loans are eligible for IBR?

As mentioned above, eligible loans for IBR include Direct Subsidized and Unsubsidized Loans, some FFEL and Stafford Loans, grad PLUS loans, and consolidated loans that don't include parent PLUS loans.

However, starting July 2026, Direct Consolidation Loans with parent PLUS loans included will be eligible, provided that parents:

• Enrolled in Income-Contingent Repayment (ICR) first
• Made at least one payment under the ICR plan

The “One, Big, Beautiful Bill Act” also imposed a new time-based restriction on eligibility. Anyone who took out new loans, or who was a new borrower, after July 1, 2026, will not be able to use IBR. If you must consolidate to become eligible for IBR, the funds from the consolidation loan also must have been disbursed no later than June 30, 2026. 

The Department of Education recommends applying for a consolidation loan at least three months prior to the July 1, 2026, deadline to ensure funds are disbursed in time.

IBR forgiveness and tax implications

IBR provides student loan forgiveness after 20 or 25 years, depending on when you first borrowed. IBR is also a qualifying plan for Public Service Loan Forgiveness (PSLF). You can qualify for forgiveness based on public service work if you work full-time at a qualifying job and make 120 qualifying payments on your IBR Plan or other eligible income-driven plan.

If you have your debt forgiven outside of PSLF in 2026 or later, you’ll be taxed on the forgiven amount. While the American Rescue Plan Act of 2021 temporarily shielded forgiven student loan debt from federal taxes, this provision expired Dec. 31, 2025, so forgiveness will be taxable in 2026 and beyond.  

Forgiven debt under PSLF is not considered taxable income and will not be considered taxable in 2026.

How to apply for Income-Based Repayment

The first thing to do before you change your student loan repayment plan to IBR is to make sure an income-driven plan is right for you.

"If you apply for Income-Based Repayment, you will stretch out your payments over a longer period and pay more interest because of this," explains Domenick D'Andrea, an accredited investment fiduciary and co-founder of DanDarah Wealth Management. 

If IBR is the right plan and you are ready to move forward:

1. Visit the Federal Student Aid website.
2. Log in to your Federal Student Aid account to begin the process of requesting the IBR Plan.
3. Confirm your contact details.
4. Review the loan information that’s on file.
5. Confirm your personal information.
6. Allow the IRS to provide your financial information, or enter your own financial information and upload the required proof of income.
7. Review your current payment plan and request a switch to IBR.
8. Agree to the terms and conditions.

If you don’t enroll in IBR before July 1, 2028, you’ll no longer be able to use this plan. Your only income-driven plan option will be the new Repayment Assistance Plan.