Posted on | June 14, 2012
The short answer is yes, but the long answer is it depends. In other words a Federal Perkins loan may qualify for Income Based Repayment (IBR), but not by itself or not all the time. This article will tackle the basic concepts of a Perkins loan as well as an IBR. By the end of this article the reader should be able to understand both concepts, know the answer to the principle question and the procedure for such.
Perkins Loan Defined
A Federal Perkins Loan is a type of student loan that is given to qualified US citizens who meet specific requirements and can show actual financial need and/or hardship. The fund is partly subsidized by the government, equally funded by the qualified institution and also funded by repayments made by existing grantees. The usual payment period provides for a maximum of 10 years and the interest rate is fixed at 5%.
The Income Based Repayment plan (IBR) became available beginning July 1, 2009 and was enacted to be an option to other payment plans such as the Income Sensitive Repayment plan (ISR) and the Income Contingent Repayment (ICR). All three repayment plans are designed to provide specific tools for student loan grantees that are having a hard time paying for their student loans.
The Role of IBR
The IBR is intended for student grantees whose education qualifies them for lower income generating jobs or careers. This is done by:
- Placing a cap on the regular installment payments based on the borrowers income or expected income.
- Considering the household size as well as the income generated by the household
- Interest rates are annually adjusted for the benefit of the grantee to be based on household size and income generated.
- In most cases the installment payments do not go beyond 10% of the regular gross income. This applies to single borrowers (up to $50,000 annual income) and married borrowers (up to $100,000 annual income).
What is IBR Loan Forgiveness?
Under existing laws and backed up by jurisprudence, the maximum repayment period for an IBR plan is set at 25 years. However in some cases the actual repayment schedule of the student loan maybe more than that. When this happens the IBR mandates that the remaining balance be forgiven and the loan considered fully paid. However it bears stressing that any amount forgiven is still subject to tax because the law considers the same as revenue and taxes it as such.
Types of Student Loans that Qualify for IBR
The list of eligible loans includes federally funded and/or subsidized student loans such as Stafford loans, Grad Plus Loans BUT not Perkins loans! However a loophole to this limitation is that Perkins loans maybe consolidated using IBR provided the consolidation is originated using other qualified student loan types. For example, Mr. A has a Perkins loan and other types of privately funded student loans. This means Mr. A cannot qualify for IBR if he uses the Perkins loan as a basis to apply for IBR. However Mr. B has a Stafford loan and a Perkins loan. Mr. B then uses the Stafford loan as the basis to apply for IBR and includes the Perkins loan for consolidation. In this case IBR consolidation can now include the Perkins loan.