What About IBR?

 Because Winter break is coming, a time to earn for most students and, of course a time to spend, Planet College brings you this reminder.

This is about Income Based Repayment, IBR.

If you have been using loans to fund your education and you are approaching graduation either this term or Spring then re-payment is looming on your financial horizon.  Briefly, loans are the temporary use of some product or service with the expectation that the property or service will be returned along with compensation. When the product is money the compensation along with returning the borrowed money is called interest. Interest is the fee, usually expressed as a percentage, for using the money. Most loan rates are expressed as annual percentage rates meaning the total due on the loaned money is figured yearly.

Interest is a kind of rent.

Here is a simple example. If you needed a thousand dollars to go to school and some person or organization said " We can loan you the thousand dollars you need. We will charge you ten per cent interest annually."  Ten percent of a thousand dollars is a hundred dollars. They would be saying that after you have received the money you would owe them a hundred dollars a year in addition to the thousand dollars you borrowed until you paid them back. If you paid them back within one year you would have paid them eleven hundred dollars.

Those are the basic principles and the basic procedure.  There is more to it but that is the basis your lender is working from.

So. What about IBR?

Lenders who deal with a large number of people develop a variety of programs which are intended for specific types or groups of borrowers.  One group is graduates with loans who do not initially earn large salaries.  Individuals in this group often have, relatively speaking, large debt. That means large loans to repay but a small income  from which to repay .  With this in mind some lenders have developed a program which bases the debtors payments on their earnings.  This program uses income as reported by the former student to calculate their monthly payments. This program has two purposes. One, to get the lender their money, two to assist the former student in dealing with their loans.  Simply put, the sooner you pay off your loans the less you will pay total.      ( And you will get to keep more of your income to spend on things you really want.)