Are You in the Income Based Repayment Plan?

If you are in the Income Based Repayment Plan (IBR), I would like to ask you to do a little homework about your financial situation and the potential damage you might be doing to yourself in IBR.

IBR provides a fairly small monthly payment if you have a large student loan relative to your income. It helps you when you are in a tough spot financially. The problem is it can also tempt you to get into the program when you have large student loans even when you are making pretty good money.

Question #1 – Are you in IBR because you are experiencing a serious income problem?

IBR can be a great way to address a temporary financial crisis. If you cannot make the normal monthly payment on your student loan, IBR can reduce the payment to a level that is manageable. It can basically buy you some time while you are working on getting your income back up. On the other hand, if you are making pretty good money but you have a large student loan balance, you may just be making your debt problem worse by being in IBR.

Question #2 – Is your monthly payment in IBR covering the monthly interest?

Look up how much interest is due on your loans each month. If your monthly payment is less than that amount, you are basically digging yourself a deeper hole every single month. The amount of principal plus interest due on your loans is going up every month. That’s a recipe for disaster if you allow it to go on for long.

IBR can be a blessing or a curse. It all depends on your current situation and whether you have a well thought out plan for getting the debt paid off.

Don’t go into IBR without knowing how it works. You need a plan that takes into account the reality of your current situation and how you plan to eventually get your student loans paid off.

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