The Income Based Repayment program is a federal program that offers debt relief to people based on their ratio of income to student loan payments. It caps your monthly student loan payment at 15% of your income in excess of 150% of the poverty level. For a single person living in the contiguous 48 states, that 150% mark is $17,235.
Most of the conversation about IBR has focused on students working in low paying jobs, say the small firm attorney bringing in $45,000 a year with $100,000 of debt. With a 6.8% interest rate (which will be assumed for all these calculations) and a standard 20 year repayment term, $100,000 of debt comes to $763 a month, or 20% of your annual pre-tax income. Ouch!
In steps IBR though, we deduct $17,235 from your $45,000, multiply by .15, and get uh..., well I got $347 per month, but the Education Department is telling me $353. Close enough though. You're paying less than half what you owe, saving more than $400 a month. If you were down in true poverty territory and applying for food stamps, you'd only get half that amount.
Let's run some other numbers though. What about someone earning not low-median pay, but an amount just above median, such as $75,000. You still qualify for IBR, though you'll be paying $728 a month. Just savings of $35 a month.
But that's still assuming $100,000 of debt, and while that might be the median amount, it's far from what many people actually owe. Tuition at many schools tops $50,000 a year, so $150,000 isn't going to be that uncommon. Earning $75,000 a year with $150,000 of debt, your monthly payments ought to be $1145. And how much will you be paying under IBR?
...If you paid attention, you'll know that it's the same $728 a month because I didn't change your income. You're now getting more than $400 a month in benefits.
You're near the 90th percentile of all income earners, you're earning about $10,000 more than the median starting salary for a lawyer, and yet you're still entitled to $417 a month in welfare benefits. Again, twice what a single person can get on food stamps.
Let's not stop there though. Let's put these numbers really through the ringer. The most expensive school is Northwestern, where if you debt finance the whole thing, and taking into consideration moderate increases to tuition and cost of living while you're there, as well as interest accrued during your stay, you're looking at $291,900 in debt (according to LST). That debt level is going to set you back $2,228 a month.
The most you can hope to earn is going to be about $175,000. That's a $160,000 base pay with a decent bonus, and maybe a small spring bonus on top. Under IBR you'll only owe $1978.
Even earning $175,000 a year, your income is still too low to service your loans, and the government will give you $250 a month in debt relief.
You'd have to earn $195,475 to not qualify for IBR.
Earning top dollar, $175,000 a year, you'd qualify for IBR if you full debt financed your education at not only Northwestern, but also Columbia, Stanford, NYU, George Washington, Harvard, UC-Berkeley, Fordham, Cardozo, Yale, Brooklyn, USC, Cornell, Penn, NYLS, Chicago, Chapman, Georgetown, Southern Methodist, St. John's, Emory, Catholic, Loyola Marymount, UC-Hastings, Southwestern and Hofstra.
If you started with the national average of $25,000 in undergraduate debt, you'd also qualify for IBR by fully debt financing your education at Thomas Jefferson, Pepperdine, Steon Hall, Vanderbilt, Washington St. Louis, Northeastern, American, Duke, UC-Irvine, John Marshall, Touro, California Western, Case Western Reserve, UVA, UCLA, San Diego, Golden Gate, Syracuse, Michigan, Pacific, Quinnipiac, Suffolk, Whittier, Tulane, Baylor, Depaul, Phoenix, Vermont, Santa Clara, UC-Davis, New England, and La Verne.