Does your current (or future) federal student loan payment seem a bit daunting? As of July 1, there's a new repayment option for federal student loans that may help.
Income Based Repayment 
(IBR) is designed to help borrowers who find that their current income makes the required payments with a standard repayment term difficult to afford.
Here's how it works:
Loan eligibility: IBR is available for the Federal Stafford Loans, Federal PLUS Loans for graduate and professional students, and Federal Consolidation Loans, either with Direct Loans or a private lender like Wells Fargo through the Federal Family Education Loan Program (FFELP). However, there are a couple of exceptions: The loan cannot be in default, and IBR is not available for Federal PLUS Loans for parents or Federal Consolidation Loans that repaid a Federal PLUS Loan for parents.
Payment calculation: Through IBR, borrowers' monthly payments are calculated by taking into consideration their adjusted gross income
How to apply: If you find that your payment with IBR may be lower than with a standard repayment period, you can apply for IBR directly through your lender. If your loan is with Wells Fargo, you can call 1-800-658-3567.
Now that you know how it works, here are some considerations for you:
Added benefits: A more manageable student loan payment is a big deal, but there are a couple other benefits of IBR. If you make qualifying payments on your loan under Income Based Repayment for 25 years, you may be able to have any remaining balance discharged. Also, if you have a subsidized loan and your IBR payment doesn't cover the monthly interest your loan accrues, that unpaid interest will be subsidized by the government for up to three consecutive years from when you first enter IBR repayment.
Possible drawbacks: Remember to consider the cons of IBR as well. A reduced payment through IBR usually means you're taking more time to pay off your loan, which can mean paying more interest over the life of the loan. Borrowers must also submit necessary paperwork each year to continue with IBR. And if you are no longer eligible for IBR, any unpaid interest that has accrued on your loan is capitalized (added to the principal balance) and will be charged interest.
Anyone have additional questions on Income Based Repayment? Leave them here!
Barbara, I used the calculator on your website and it said I qualified for the IBR. I called Wells Fargo and I was told I did not qualify. Can you please clear this up for me?
Anonymous – did you use the Department of Education’s IBR calculator and compare it with the standard Federal Stafford Loan Repayment calculator on wellsfargo.com? Why don’t you contact us through our Ask the Expert tool so we can get your information and look into the details of your situation?
If in a few years I don't qualify for the program anymore, do I have to pay all of that capitalized interest immediately, or does it get transferred into another repayment plan that I do qualify for? Also, when you say that any unpaid interest that has accrued is capitalized and will be charged interest if you no longer qualify, does that mean I will end up paying a lot more than I would have if I never entered this program?
Jamie – If you were to exit the program, the interest that’s accrued is added to the principal balance (capitalized). So you wouldn’t have to pay it all off when you moved to a different repayment plan, but it would begin to accrue interest. So you’re paying interest on your interest. There’s a calculator at FinAid that you can use to compare the total amount of interest you’d pay with each plan. Here’s the link: www.finaid.org/calculators/ibr.phtml. Generally, because you’re taking more time to pay off your loan, you’ll be paying more interest over time.