What to Know About Income-Based Repayment (IBR) for Student Loans [December 2024]

In August 2023, the Biden administration introduced the Saving on a Valuable Education (SAVE) plan. It’s now facing legal challenges. While courts work toward a resolution, borrowers enrolled in SAVE are in administrative forbearance, and some IDR plan applications are on hold. 

While this is ongoing, you can learn about how income-driven repayment (IDR) plans work, including SAVE and IBR, and what to expect during this period. This guide will help you navigate your options and understand how to apply when possible.

What is income-based student loan repayment?

Income-based repayment is one of four IDR plans the Federal Student Aid office offers. Under these plans, the Department of Education (DoE) considers borrowers’ household size and income to determine their monthly federal student loan payments. 

IBR plans consider your discretionary income and family size, which is a good thing—your discretionary income is lower when you start an entry-level position or begin growing your family. These will most likely lower your payment. 

Erin Kinkade, CFP®

Other IDR plans include:

• Saving on a Valuable Education (SAVE) Plan—formerly REPAYE 
• Pay As You Earn (PAYE) Repayment Plan
• Income-Contingent Repayment (ICR) Plan

Borrowers can’t apply for new PAYE or ICR plans because both were slated to be phased out for new applicants with the introduction of SAVE. You can apply for a SAVE or IBR plan, but processing could take several months.

Old IBR

The old IBR plan is for federal student loans borrowed before July 1, 2014, and it has slight differences from its newer counterpart. Here’s a look at this plan.

New IBR

The new IBR plan is for federal student loans taken out after July 1, 2014. The major differences between its older counterpart are payment amounts and repayment length. Here’s a look at this plan.

IBR vs. SAVE

The SAVE plan, which was introduced in 2023 and is held up in court at the time of writing (September 2024), aims to give borrowers the lowest possible monthly payments of any IDR plan. Not only do borrowers only pay up to 5% of their discretionary income each month, but SAVE is unique in that it also increased the income exemption from 150% to 225% of the poverty line. 

This increase could result in borrowers paying even less. Repayment terms under SAVE are up to 20 years for undergraduates and 25 for graduate students. SAVE plan borrowers are now in administrative forbearance while we await a legal resolution. 

SAVE differs from IBR in several ways, as you can see below:

	SAVE	IBR
Payment amount	5% of discretionary income	10% of discretionary income
Repayment length	20 years for undergraduates; 25 years for graduate students	20 years
Discretionary income calculation	Household income – 225% of federal poverty line = Total discretionary income	Household income – 150% of federal poverty line = Total discretionary income

SAVE vs. PAYE 

PAYE was set to be phased out with the introduction of SAVE, so new applicants can no longer apply for this plan. It’s only available for those who applied before July 1, 2024. 

Under PAYE, borrowers pay 10% of their discretionary income each month toward their federal student loans, and repayment terms are 20 years. Monthly payments for borrowers on the PAYE plan can never be higher than payments on a standard 10-year repayment plan. 

Here’s how SAVE and PAYE compare:

	SAVE	PAYE
Payment amount	5% of discretionary income	10% of discretionary income
Repayment length	20 years for undergraduates25 years for graduate students	20 years
Discretionary income calculation	Household income – 225% of the federal poverty line = total discretionary income	Household income – 150% of the federal poverty line = total discretionary income

ICR vs. IBR 

While income-contingent repayment (ICR) and income-based repayment sound similar, they differ in a couple of important ways. Most borrowers can’t apply for new ICR plans anymore; they’re being phased out like PAYE plans—the one exception is borrowers with Direct Consolidation Loans used to pay off Parent PLUS loans. 

Here’s a look at ICR vs. IBR plans:

	ICR	IBR
Payment amount	20% of discretionary income	10% of discretionary income
Repayment length	25 years	20 years
Discretionary income calculation	Household income – 150% of the federal poverty line = Total discretionary income	Household income – 150% of the federal poverty line = Total discretionary income

How do you apply for income-based repayment on your student loans? 

The process of applying for an IBR plan right now is a bit different than normal. First, you can only apply for a SAVE or IBR plan; the Federal Student Aid office is no longer accepting new applications for PAYE or ICR. 

Normally, you can apply for IBR online through the StudentAid website. But you can’t do that right now because of the ongoing legal issues. However, you can submit an application directly with your loan servicer. Just upload it through your online account with your loan servicer or fax or mail a paper application. 

Expect long processing delays after you submit your application. Student loan servicers have paused application processing until the courts resolve the matter. 

When considering an IBR, there are a couple of important items to know about. The first is eligibility because, typically, federal loans are eligible, and most private loans are not. If you are thinking about consolidating or refinancing from a federal loan to a private loan, be aware that you could lose the IBR benefit. Understanding the tax implications is important as well. Although some IBRs are excluded from taxation of the forgiven amount, this could change. 

Erin Kinkade, CFP®

What to do if you have current student loans on an IDR plan

The recent legislation hasn’t affected all aspects of IDR plans. If you have current student loans on an IBR plan or an ICR or PAYE plan effective before July 1, 2024, for instance, you can proceed as normal with your monthly payments and recertify your plan as you normally would. The deadline for annual recertification has been extended to November 1, 2024. 

Borrowers enrolled in a SAVE plan have been placed on administrative forbearance, which pauses payments until the broader legal issues are sorted out. Loans won’t accrue interest during forbearance, but this period won’t count toward Public Student Loan Forgiveness (PSLF). 

If you’re a SAVE plan borrower who wants credit toward PSLF during this forbearance, the Federal Student Aid office gives you two options. Ensure you understand all the details about these options before taking action.

1. Buy back monthly credit: Eligible borrowers can make payments to cover the months they’re in an ineligible forbearance status. You can submit a buyback request to start the process.
2. Change your IDR plan: You can enroll in a different IDR plan that supports PSLF. Keep in mind that your monthly payments might be higher if you go this route, and loan servicers have paused application processing. 

What if I applied for an IDR plan before it was blocked?

Two lawsuits blocked the SAVE Plan, claiming the president couldn’t enact certain parts without congressional approval. The Supreme Court has declined to consider those lawsuits, and lower courts are still working toward a resolution.

The recent legislation doesn’t just affect the SAVE plan; it’s also influenced IDR plans as a whole. You can still apply for certain IDR plans, including SAVE and income-based repayment (IBR) plans, with your loan servicer. However, servicers have paused application processing for an undetermined period pending legal resolution, leaving many borrowers in limbo. 

If this is the case for you, your loan servicer may place you in a temporary processing forbearance for up to 60 days. Interest will accrue during this forbearance. If your IDR plan application isn’t processed within 60 days, you’ll be placed in general forbearance, during which time interest won’t accrue. Due to ongoing litigation, borrowers might be stuck waiting a while for a resolution. 

Alternatives to income-based repayment for student loans

With the uncertainty surrounding the future of IDR plans, student loan borrowers who need to lower their payments can consider several alternatives.

Extended repayment

The extended repayment plan allows borrowers to extend their repayment term up to 25 years. Spreading the balance over a longer period can result in lower monthly payments. However, it increases the total interest paid over the life of the loan.

Graduated repayment

Graduated repayment starts with lower monthly payments that increase every two years. This plan is designed for borrowers who expect their income to rise over time. Depending on the loan balance, the term can be up to 30 years. Payments start small but increase as the repayment period progresses.

Refinance

Student loan refinancing involves replacing one or more loans with a new one that may have a lower interest rate or different repayment terms. This can be helpful for borrowers with a good credit score or a stable income because it may lead to lower monthly payments or a shorter repayment period. 

However, refinancing federal loans with a private lender means losing access to federal protections, such as forbearance and loan forgiveness options.

FAQ 

Do income-driven repayment loans get forgiven?

Yes, loans on IDR plans can be forgiven. After making payments for a set number of years—typically 20 or 25 years, depending on the specific plan—any remaining loan balance is forgiven. However, the forgiven amount may be considered taxable income.

Can you pay off an IDR plan early?

Yes, you can pay off an IDR plan early by making extra payments. However, paying off the loan early may mean you won’t benefit from loan forgiveness, which only occurs after the required repayment period. Evaluate whether an early payoff makes sense for your financial situation.

How long does an income-driven repayment plan last?

The length of an income-driven repayment plan depends on the specific plan and borrower situation, but it might last 20 or 25 years. After making qualifying payments for that time, any remaining loan balance is forgiven.

How could the blocking of SAVE affect my student loan forgiveness?

With the SAVE plan now blocked, borrowers may face increased monthly payments and delayed access to the plan’s loan forgiveness benefits. SAVE was designed to lower monthly payments based on income and accelerate the timeline for loan forgiveness. 

Without SAVE, borrowers on IDR plans may need to revert to older, less favorable repayment terms, leading to higher payments and potentially a longer path to forgiveness. It’s important to explore alternative repayment options or consult a loan servicer for guidance on managing payments under these changes.