A partial financial hardship is a formula used to determine your eligibility for the Pay As You Earn and the Income-Based Repayment plans.
For the PAYE plan, you have a partial financial hardship if your annual payments under the 10-year Standard Repayment plan exceed 10% of the difference between your adjusted gross income (AGI) and 150% of the poverty line for your family size.
Poverty Guidelines Change Each Year. The poverty guidelines are set each year by the US Department of Health & Human Services. Your loan servicer will use these guidelines, your family size, and the AGI from your most recent tax return to determine your discretionary income, and, in turn, your monthly payment amount.
The same formula is used to determine a partial financial hardship under the IBR plan for new borrowers.
There are two IBR plans. One for new loan borrowers and the regular IBR plan. You’re considered a new borrower if you had no outstanding balance on an FFEL loan or Direct Loan on July 1, 2014, or if you have no outstanding balance on the date you get a new Direct Loan after July 1, 2014.
The formula changes if you choose the regular IBR plan.
Under that plan, you have a partial financial hardship if your annual payments under the Standard plan exceed 15% of the difference between your AGI and 150% of the poverty line for your family size.
Basically, under both the PAYE and IBR plans, you have a partial financial hardship if you would have a lower annual amount due under one of those plans than you would under the Standard Plan.
Related: Why IBR is the Right Repayment Plan For You