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Student Loans Student Loan Repayment

Income-Driven Repayment Plans Guide

Updated Apr 05, 2023   |   10 mins read
Written by Jeff Gitlen, CEPF®  
Updated Apr 05, 2023

Note about changes due to COVID-19:

There have been changes to the federal student loan program as a part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that passed in Congress on March 27, 2020, to help those affected by the Coronavirus.

Until June 30, 2023, borrowers have the option to suspend payments without penalty, if needed. Payments made on federal student loans during this time will first apply to unpaid interest accrued before March 13, 2020, then directly towards the principal balance. In addition, no interest will accrue during this time—effectively setting the rate at 0%.

If you are pursuing forgiveness through an income-driven repayment plan, skipped payments will still count towards the time required to be eligible. Learn more in our federal student loans guide.

Income-driven repayment plans are a group of federal student loan repayment plans designed to help borrowers who are having trouble affording their monthly payments.

If you’re currently unemployed, can’t work for some reason (such as medical leave or maternity leave), or earn too low of a salary to comfortably cover your payment obligations, these plans can help ease the burden of student loans.

This guide will cover the various income-driven repayment options including IBR, PAYE, REPAYE, and ICR. Note that only federal student loans are eligible for these plans. There are other options to consider if you are having trouble repaying private student loans.

On this page:

Income-Driven Repayment Plans

Learn more about each income-driven repayment plan below. You can click an option to jump to that section.

Income-Based Repayment (IBR) Plan

The federal government introduced the Income-Based Repayment Plan (IBR) in 2009. Since that time, it has become the most popular alternative to the standard 10-year plan, which is unsurprising given the rising cost of college tuition. IBR is a smart choice for borrowers who have lower incomes and cannot afford the monthly payments on their student loan debt.

You are only eligible for IBR if you demonstrate financial need and your new payment would be less than that under the standard repayment plan. 

Repayment Period

  • 25 years for loans taken out before July 1, 2014
  • 20 years for loans taken out on or after July 1, 2014

Payment Amount

  • 10% of your discretionary income if you’re a new borrower on or after July 1, 2014, but never more than the 10-year standard repayment plan amount
  • 15% of your discretionary income if you’re not a new borrower on or after July 1, 2014, but never more than the 10-year standard repayment plan amount
  • Use our Income-Based Repayment Calculator to see what your monthly payment would be.

Eligible Loans

Pros of the IBR Plan

  • Reduced monthly payment
  • Forgiveness after 20-25 years depending on the repayment period

Cons of the IBR Plan

  • More interest accrues over time
  • Longer repayment term
  • Any remaining debt forgiven after 20-25 years will be taxed as income

Pay As You Earn (PAYE) Plan

The government introduced the Pay As You Earn plan (PAYE) in 2012. Because this plan is very similar to IBR, it is another smart option for those who are having a hard time managing their student loan payments.

Like IBR, in order to be eligible, your new payment must not be higher than it would be under the standard 10-year plan. The main difference between IBR and PAYE is that PAYE has stricter eligibility requirements. To qualify for PAYE, you must have taken out a loan on or after October 1, 2007, and you must have received a disbursement of a Direct Loan on or after October 1, 2011. 

Repayment Period

  • 20 years

Payment Amount

  • 10% of discretionary income, but never more than the 10-year standard repayment plan amount

Eligible Loans

  • Direct Loans
    • Regular Direct Loans (both subsidized and unsubsidized)
    • PLUS Loans (besides Parent PLUS)
    • Direct Consolidation Loans (besides those used to consolidate Parent PLUS loans)
  • FFEL Loans
    • PLUS Loans if consolidated (besides Parent PLUS)
    • Stafford Loans if consolidated (both unsubsidized and subsidized)
    • Consolidation loans (besides those used to consolidate Parent PLUS loans)
  • Federal Stafford Loans if consolidated (both subsidized and unsubsidized)
  • Federal Perkins Loans (if consolidated)

Pros of the PAYE Plan

  • Reduced monthly payment
  • Forgiveness after 20 years

Cons of the PAYE Plan

  • More interest accrues over time
  • Longer repayment term
  • Any remaining debt forgiven after 20 years will be taxed as income

Revised Pay As You Earn (REPAYE) Plan

The government released the revised version of PAYE in 2015. Fittingly, this new plan was called deemed the Revised Pay As You Earn (REPAYE) program.

The new plan is much like its predecessor but is open to many more student loan borrowers because it does not require any financial hardship. Furthermore, this plan is based on both current income and family size (throughout the life of the REPAYE loan).

Repayment Period

  • 20 years for undergraduate student loans
  • 25 years for graduate and professional student loans

Payment Amount

  • 10% of discretionary income

Eligible Loans

  • Direct Loans
    • Regular Direct Loans (both subsidized and unsubsidized)
    • PLUS Loans (besides Parent PLUS)
    • Direct Consolidation Loans (besides those used to consolidate Parent PLUS loans)
  • FFEL Loans
    • PLUS Loans if consolidated (besides Parent PLUS)
    • Stafford Loans if consolidated (both unsubsidized and subsidized)
    • Consolidation Loans (besides those used to consolidate Parent PLUS loans)
  • Federal Stafford Loans if consolidated (both subsidized and unsubsidized)
  • Federal Perkins Loans (if consolidated)

Pros of the REPAYE Plan

  • Reduced monthly payment
  • Forgiveness after 20 years for undergraduate loans and 25 for graduate/professional loans
  • Only have to pay 50% of accrued interest on subsidized loans after three years
  • Only have to pay 50% of accrued interest for full REPAYE repayment period

Cons of the REPAYE Plan

  • Spouse’s income is included in monthly payment determination
  • Any remaining debt forgiven after 20-25 years will be taxed as income

>> Read More: PAYE vs. REPAYE

Income-Contingent Repayment (ICR) Plan

The Income-Contingent Repayment plan (ICR) is much like the other income-driven repayment plans; however, only Federal Direct Loans are eligible. This does, however, include Parent PLUS loans, whereas the others do not.

There is no income requirement to be eligible for ICR and borrowers who make higher salaries are still eligible. This may be a good option for those who want to free up some money in their monthly budget, even if they can afford their current monthly payments. Like REPAYE, this program is based on current income and family size for the life of the loan.

Repayment Period

  • 25 years

Payment Amount

  • Whichever is less:
    • 20% of your discretionary income
    • The amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income

Eligible Loans

  • Direct Loans
    • Regular Direct Loans (both subsidized and unsubsidized)
    • PLUS Loans (including Parent PLUS)
    • Direct Consolidation Loans (including those used to consolidate Parent PLUS loans)
  • FFEL Loans
    • PLUS Loans if consolidated (besides Parent PLUS)
    • Stafford Loans if consolidated (both unsubsidized and subsidized)
    • Consolidation Loans (besides those used to consolidate Parent PLUS loans)
  • Federal Stafford Loans if consolidated (both subsidized and unsubsidized)
  • Federal Perkins Loans (if consolidated)

Pros of the ICR Plan

  • No income eligibility requirement
  • Forgiveness after 25 years
  • Possibility of reduced monthly payment

Cons of the ICR Plan

  • Payments may be higher than they would under a standard repayment plan
  • Any remaining debt forgiven after 20-25 years will be taxed as income

When to Switch to an Income-Driven Repayment Plan

It is smart to switch to an income-driven repayment plan when you cannot afford your monthly payment or are otherwise experiencing financial hardship. Because these plans (usually) reduce your monthly payment, you will have to pay less each month, freeing up money to spend elsewhere.

Another benefit of switching to an income-driven repayment plan is your potential eligibility for forgiveness. If you have high debt and low income, you may be able to have a substantial amount of debt forgiven after 20 or 25 years of qualifying payments, depending on the plan. 

Look into each program’s specific details to see what you qualify for and what your new payment plan would look like — both month-to-month and over the life of your loan. If you qualify for multiple plans, calculate what your monthly payment would be in each and decide which makes more sense for your situation.

If you are still unsure whether you should switch to an income-driven repayment plan, contact your student loan servicer for more advice.

When to Avoid Switching to an Income-Driven Repayment Plan

If you have no trouble with your current monthly payment, it probably doesn’t make sense for you to switch to an income-driven plan. Because the repayment length is longer than it would be under the standard 10-year plan, more interest accrues over time and will increase the overall cost of borrowing.

If you came to this page thinking income-driven repayment plans could save you money on your student loan debt, you should consider comparing private lenders that refinance student loans. When refinancing, a new lender pays off your old loans and gives you a new one with new terms. Typically, borrowers receive lower interest rates and can save thousands over the life of their loans.

How to Apply for an Income-Driven Repayment Plan

If you have decided switching to an income-driven repayment plan is for you, you can submit an income-driven repayment plan request on the government’s website or fill out the paper version, which you can obtain from your loan servicer. 

You’ll need to verify your income in some way, usually by providing your most recent tax return that lists your adjusted gross income (AGI). You can submit your AGI with your federal income tax return or through the IRS Data Retrieval Tool.

If you have not filed a federal tax return in the past two years or your income is substantially different than what it was when you filed, you will have to provide alternative documentation. This may include a pay stub that shows your current salary. If you currently have no income, you may not have to provide any documentation.

Bottom Line

If you’re struggling with your current student loan payment, switching to an income-driven repayment plan may help ease the burden. Not only does it cap the amount you pay each month based on your income, but it may also allow you to qualify for student loan forgiveness once you’ve made qualifying payments for a certain number of years. 

Don’t see the lower monthly payment and immediately sign on the dotted line, though. Be sure to consider the long-term implications of switching your repayment plan. In most cases, you will end up paying more over the life of your loan because of accrued and/or compounded interest. 

If you’re still unsure about what to do regarding your federal student loan repayment, speak to your servicer about your options. Furthermore, if you’re looking to pay less on your student loans and have a good credit score, consider refinancing them to a lower interest rate, which could help you save money even when extending your repayment period.