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Income-Sensitive Repayment for Federal Student Loans

Income-Sensitive Repayment (ISR) is one of several repayment plans that base the monthly loan payments on a percentage of the borrower’s gross income or discretionary income. The other repayment plans are Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay-As-You-Earn Repayment (PAYE), Revised Pay-As-You-Earn Repayment (REPAYE), and Alternative Repayment. These repayment plans make the debt more affordable for a borrower whose debt is out of sync with his or her income.

Income-sensitive repayment is available only for federal student loans in the Federal Family Education Loan (FFEL) program. It is not available for loans in the Direct Loan program. Borrowers must apply for income-sensitive repayment annually.

The monthly payment under income-sensitive repayment is based on a percentage of gross income, as opposed to a percentage of discretionary income. The monthly loan payment is set at a fixed percentage of gross monthly income, between 4 percent and 25 percent. The monthly payment must also exceed the new interest that accrues. Since income-sensitive repayment cannot be negatively amortized, the percentage of gross monthly income must exceed the product of the debt-to-income ratio with the interest rate.

Income-sensitive repayment is also subject to the three-times rule, where no payment can be more than three times any other payment.

Income-sensitive repayment is limited to a 10-year term if the loans are not consolidated. If the loans are consolidated, income-sensitive repayment is limited to a repayment term of 10 to 30 years, depending on the amount owed. Lenders may offer a repayment accommodation forbearance of up to five years of payments when the borrower will be unable to repay the debt under income-sensitive repayment within the maximum repayment period.

Income-sensitive repayment is best for borrowers with a short-term financial difficulty, as an alternative to an economic hardship deferment or forbearance.

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In order to qualify for private student loan refinancing, lenders require a strong credit score with proof of income and employment history. In some cases a cosigner may be required. Also, if you have adverse credit history, including a prior student loan default*, you may not be eligible. * Default = 270 days late/missed payment on a federal loan and typically 90 days late/missed payment on a private loan(contact your lender for exact definition of default).

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