FinAid - Financial Aid Advice The SmartStudent Guide to Financial Aid
Site MapAbout FinAid
Saving for College
Military Aid
Other Types of Aid
Financial Aid Applications
Answering Your Questions
Beyond Financial Aid


Income Sensitive Repayment


Income Sensitive Repayment (ISR) is an alternative to income contingent repayment for loans serviced by lenders in the Federal Family Education Loan Program (FFELP). It is designed to make it easier for borrowers with lower paying jobs to make their monthly loan payments.

The monthly loan payment is pegged to a fixed percentage of gross monthly income, between 4% and 25%. The percentage is determined by the borrower and the resulting monthly payment must be greater than or equal to the interest that accrues. Some lenders set a minimum threshold on the percentage of income based on your debt-to-income ratio.

(A debt-to-income ratio is used by some lenders to ensure that the monthly payment is at least the interest that accrues. The interest that accrues each month is the product of the interest rate and the loan principal, divided by 12. Since the monthly payment must be at least this amount, this means the income percentage must be at least the product of the interest rate divided by 12 and the ratio of the loan principal and the gross monthly income. Thus the income percentage must be at least the debt-to-income ratio multiplied by the interest rate and divided by 12. A good rule of thumb is to use an income percentage that is at least 2/3 of the debt-to-income ratio.)

Borrowers must reapply for income sensitive repayment each year. Borrowers are usually required to provide a copy of their income tax returns and/or W-2 statements every time they apply for income sensitive repayment.

Because income sensitive repayment decreases the monthly payment, as compared with standard repayment, and is limited to a ten year repayment term, it increases the size of the rest of the monthly payments to compensate. This will also increase the total amount of interest paid over the lifetime of the loan may be higher than with standard repayment. Students who believe they may need income sensitive repayment for more than a year should also consider extended or graduated repayment, which reduce the size of the monthly payment by increasing the term of the loan.

FinAid provides a Income Sensitive Repayment Calculator that lets you compare the ISR program with standard repayment.


Home | Loans | Scholarships | Savings | Military Aid | Other Types of Aid | Financial Aid Applications
Answering Your Questions | Calculators | Beyond Financial Aid | Site Map | About FinAid®
Copyright © 2014 by FinAid Page, LLC. All rights reserved.
Mark Kantrowitz, Founder