Which Income-Driven Repayment Plan is Best for You?

Federal income-driven repayment plans were designed to help federal student loan borrowers by basing monthly payments on income and family size.

While this benefit may increase your overall total loan cost, it can help ease the burden of student loans by offering lower payments and longer repayment terms. Plus, any balance at the end of the repayment term will be forgiven.

This guide will cover everything you need to know about the four income-driven repayment options—IBR, PAYE, SAVE, and ICR.

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Income-driven repayment plans
Should I switch to an income-driven repayment plan?
FAQ

Income-driven repayment plans

Federal student loans typically follow the Standard Repayment Plan, which means you pay fixed monthly payments for 10 years. If, however, these payments aren’t manageable for your income or household size, you can apply for income-driven repayment plans.

These plans adjust your monthly payment based on different levels of your discretionary income, depending on the plan. The U.S. Department of Education calculates your discretionary income based on your adjusted gross income (AGI) (your taxable income), your household size, and the location in which you live.

Ask the expert

Eric Kirste

CFP®

The key point to understand about the difference between the Standard Repayment Plan and income-driven repayment plans is that you will repay your loan for longer under the income-based repayment plans. Since you are paying longer, you may pay more interest under these plans, even if you qualify for forgiveness.

Four income-driven repayment (IDR) plans are offered:

	Income-Based Repayment (IBR) plan	Pay As You Earn (PAYE) plan	Saving on a Valuable Education (SAVE) plan	Income-Contingent Repayment (ICR) plan
Repayment term	20 – 25 years¹	20 years	20 – 25 years²	25 years
Typical monthly payment	10% – 15% of discretionary income	10% of your discretionary income, not to exceed the 10-year standard repayment amount	10% of your discretionary income	20% of your discretionary income or the 12-year fixed repayment plan amount, whichever is less
Loan forgiveness	Balance remaining at the end of the repayment term	Balance remaining at the end of the repayment term	Balance remaining at the end of the repayment term	Balance remaining at the end of the repayment term
Eligibility	Lower payment than a standard repayment plan with a 10-year term³	New borrower⁴; lower payment than a standard repayment plan with a 10-year term³	Any borrower with eligible federal student loans	Any borrower with eligible federal student loans, including Parent PLUS loan borrowers

Repayment term is 20 years for new borrowers as of July 1, 2014, or later and 25 years for all others.
Repayment term is 20 years if all the loans included in the plan were used to fund your undergraduate degree or 25 years if any of the loan funds were used to finance your graduate degree.
To be eligible for the IBR and PAYE repayment plans, your monthly payment (based on your income and family size) must be less than what you would pay monthly for a standard repayment plan with a 10-year term.
This plan is only available to new borrowers who took out their Direct Loan or FFEL Program loan on October 1, 2007, or later (with no outstanding balance) and received a disbursement on a Direct Loan on October 1, 2011, or later.

Income-based repayment (IBR) plan

The federal government introduced the Income-Based Repayment (IBR) plan in 2009. Since then, it has become a popular alternative to the standard 10-year plan, which is unsurprising given the rising cost of college tuition.

IBR is an intelligent choice for borrowers with lower incomes and who 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.

The key characteristics of the IBR are as follows:

	New borrower on or after July 1, 2014	All other borrowers
Repayment period	20 years	25 years
Monthly payment amount	10% of your discretionary income, not to exceed the 10-year standard repayment plan amount	15% of your discretionary income, not to exceed the 10-year standard repayment plan amount
Eligibility	Must receive a lower payment than on a standard repayment plan with a 10-year term¹	Must receive a lower payment than on a standard repayment plan with a 10-year term¹

To qualify for this plan, your monthly payment (based on your income and family size) must be less than what you would pay each month for a standard repayment plan with a 10-year term.

Tip

Use our Income-Based Repayment Calculator to estimate your monthly payment.

How does the IBR plan work?

To qualify for the IBR plan, you must demonstrate that your monthly payment (based on your income and family size) is less than what you would pay with a 10-year standard repayment plan.

For example: You live in Arizona with a family of four, an adjusted gross income of $60,000, federal student loans of $40,000, a 5% weighted average interest rate, and took out your loans after July 2014.

Assuming your income grows 3% a year on average, you can see the difference in your monthly payment, loan forgiveness, and total costs in these scenarios in the table below.

	Standard Repayment Plan	IBR plan
First month’s payment	$424	$188
Last month’s payment	$484	$484
Total loan forgiveness	$0	$20,973
Total loan cost	$50,911	$79,395

The standard repayment plan costs less than the IBR because the repayment term is only 10 years versus 20 to 25 years. You’ll generally pay more in interest costs for the IBR plan. Even though your remaining student loan balance will be forgiven, your total costs may be greater with this plan.

You’ll also need to recertify your income and family size each year for the IBR plan, even if there hasn’t been any change. To complete the recertification, you will enter the information into your StudentAid.gov account each year.

Once you’ve recertified, your payment will be calculated as follows:

Less than a 10-year standard repayment plan: As long as the calculation shows your payment is less than a 10-year standard repayment plan based on your refreshed income and family size, your payment will still be calculated using the IBR plan criteria.
More than a 10-year standard repayment plan: If the payment based on your income and family size is more than a 10-year standard repayment plan, you’ll stay on the IBR plan. However, your payment will be changed to the amount you would owe under the 10-year standard repayment plan.

If you don’t recertify by the annual deadline, you’ll stay on the IBR plan, but your payment will be the same amount as you would pay for a 10-year standard repayment plan. Also, any unpaid interest will be added to the principal balance of your loan, increasing the amount you owe.

Any remaining loan balance will be forgiven after you’ve made payments for the entire repayment term (20 to 25 years). However, remember that any forgiven amount may be considered taxable income based on IRS rules.

Eligible loans for the IBR plan

Direct Loans
- Subsidized and Unsubsidized
- Grad PLUS Loans (excludes Parent PLUS loans)
- Direct Consolidation Loans (besides those used to repay Parent PLUS loans)
FFEL Loans
- Stafford Loans (both subsidized and unsubsidized)
- PLUS Loans for graduate and/or professional students (excludes Parent PLUS loans)
- Consolidation Loans (besides those used to repay Parent PLUS loans)
Federal Perkins Loans (if consolidated)

Pros and cons of the IBR plan

Pros

Reduced monthly payment
Forgiveness after 20 or 25 years, depending on the repayment period

Cons

More interest accrues over time
Longer repayment term
Any remaining debt forgiven after 20 or 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 having difficulty managing their student loan payments.

Like IBR, your new payment must not be higher than it would be under the standard 10-year plan to be eligible. The main difference between IBR and PAYE is that the eligibility criteria for the PAYE plan are stricter—the PAYE is only available to new borrowers.

The key characteristics of the PAYE plan are as follows:

Repayment period	20 years
Monthly payment amount	10% of discretionary income, but never more than the 10-year standard repayment plan amount
Eligibility	New borrower¹ and lower payment than you would pay on a standard repayment plan with a 10-year term²

You must have taken out a loan on or after October 1, 2007, and you must have received a disbursement on a Direct Loan on or after October 1, 2011.
Your monthly payment (based on your income and family size) must be less than what you would pay monthly for a standard repayment plan with a 10-year term.

How does the PAYE plan work?

As noted, to qualify for the PAYE plan, you must demonstrate that your payment (based on your income and family size) is less than a 10-year standard repayment plan, and you must be a new borrower.

Let’s use the following hypothetical scenario to calculate the monthly payments under the PAYE plan versus a standard repayment plan:

Total adjusted gross annual income	$60,000
Estimated income growth	5%
Family size	4
State of residence	Arizona
Tax filing status	Married filing jointly
Type of education	Undergraduate degree
Loan balance	$26,946
Interest rate	3.9%

The difference between a standard repayment plan and the PAYE plan in this scenario follows:

	Standard Repayment Plan	PAYE Plan
First month’s payment	$272	$125
Last month’s payment	$272	$272
Estimated loan forgiveness	$0	$0
Total loan cost	$32,585	$35,935
Origination date	November 2023	November 2023
Payoff date	October 2033	April 2037

In this scenario, it would take you more than four years longer to repay your loan using the PAYE plan. This is because your payments would be lower based on your income at the beginning, increasing up to the standard repayment plan amount as your income increased.

Since the repayment term is longer with the PAYE plan, you would also have greater total loan costs. This is because you would pay more interest on the loan during the repayment term. Since the loan would be fully repaid in less than 20 years, none of your loan balance would be forgiven.

You’ll request an IDR plan and verify your income and family size by logging into the Federal Student Aid website. You’ll recertify your income and family size each year by providing updated data to the government following a similar process (your loan servicer will let you know when it’s due).

Your payment may increase or decrease depending on how these factors change. You can also submit updated information to your loan servicer if your financial situation greatly changes (e.g., you lose your job) rather than waiting until the following year to get your payment reduced.

Eligible loans for the PAYE plan

Direct Loans
- Subsidized and Unsubsidized
- PLUS Loans that were made to professional and/or graduate students
- Consolidation Loans (besides those used to repay Parent PLUS loans)
FFEL Loans
- Stafford Loans, if consolidated (both unsubsidized and subsidized)
- PLUS Loans that were made to graduate or professional students, if consolidated
- Consolidation Loans, if consolidated (besides those used to repay Parent PLUS loans)
Federal Perkins Loans (if consolidated)

Pros and cons of the PAYE plan

Pros

Reduced monthly payment
Forgiveness after 20 years

Cons

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

Saving on a Valuable Education (SAVE) plan

The Saving on a Valuable Education (SAVE) is the newest IDR plan, formerly the Revised Pay As You Earn (REPAYE) plan. Most student loan borrowers will receive the lowest payment with the SAVE plan versus other IDR plans because it is based on less income.

Some of the key features of the new SAVE plan are:

Reduced payments by increasing the poverty line exemption. Your payments are calculated by comparing your income to the poverty line. The SAVE plan payments are lower than its predecessor as the income exemption used for this comparison is based on 225% of the poverty line versus 150%.
Accrued interest above your payment isn’t added to your loan balance. After you’ve made your monthly payment, the government covers any accrued interest above what you paid rather than being added to your loan balance. As a result, your total loan costs may be reduced.
Income from spouses who file their taxes separately is excluded. Under the prior plan, you were required to always include your spouse’s income. Now you don’t have to include income for spouses who file their income taxes separately. This could make your payments lower.
Extra benefits are scheduled to go into effect in July 2024. These include payments decreasing from 10% of discretionary income to 5%, loan forgiveness at 10 years for those with student loan balances of $12,000 or less, and more.

Unlike the PAYE and IBR plans, your payment will always be based on your current income and family size rather than capping it at the 10-year standard repayment plan amount. Your payment could be higher than this amount as your income increases or your family size decreases with the SAVE plan.

This plan is potentially suitable for professional or graduate students who want to benefit from a long 25-repayment term and those not worried about always having income-based payments. Like the other IDR plans, it’s also suitable for those seeking public service loan forgiveness.

The key characteristics of the SAVE plan are as follows:

Repayment period	20 – 25 years¹
Monthly payment amount	10% of your discretionary income
Eligibility	Any borrower with eligible federal student loans

Repayment term is 20 years if all the loans included in the plan were used to fund your undergraduate degree or 25 years if any of the loan funds were used to finance your graduate degree.

How does the SAVE plan work?

As noted, with the SAVE plan, your payments will always be based on your income and family size, even if you would pay less under a 10-year standard repayment plan. It only makes sense to apply if you’ll receive a reduced payment. You can, however, switch to this plan at any time.

Let’s use the following hypothetical scenario to calculate your monthly payments and total loan costs under the SAVE plan versus the standard repayment plan:

Total adjusted gross annual income	$60,000
Estimated income growth	5%
Family size	4
State of residence	Arizona
Tax filing status	Married filing jointly
Type of education	Undergraduate degree
Loan balance	$26,946
Interest rate	3.9%

The difference between the SAVE plan and the standard repayment plan in this scenario follows:

	SAVE plan	Standard repayment plan
First month’s payment	$0	$272
Last month’s payment	$382	$272
Estimated loan forgiveness	$7,423	$0
Total loan cost	$30,134	$32,585
Origination date	November 2023	November 2023
Payoff date	October 2043	October 2033

In this case, you wouldn’t need to make any monthly payment at the beginning of the loan term based on your income and family size. However, as your income increased, your payment would eventually exceed the payment on a 10-year standard repayment plan.

Even so, your total costs would be less under the SAVE plan than the standard repayment plan for a couple of reasons:

Excess interest charges aren’t added to your loan balance. If your monthly payment doesn’t cover all the accrued interest, the government covers the remaining interest instead of adding it to your loan balance. This is a unique feature of the SAVE plan.
The remaining balance at the end of the loan term is forgiven. Any remaining loan balance at the end of the repayment term (20 years, in this scenario) is forgiven. In this case, the loan forgiveness results in lower total loan costs.

Remember, every person’s situation is unique. Using the Federal Student Aid Loan Simulator, you can easily compare the various loan options for your unique circumstances.

Eligible loans for the SAVE plan

Direct Loans
- Subsidized and Unsubsidized
- PLUS Loans that were made to professional and/or graduate students
- Consolidation Loans (besides those used to repay Parent PLUS loans)
FFEL Loans
- Stafford Loans, if consolidated (both unsubsidized and subsidized)
- PLUS Loans that were made to graduate or professional students, if consolidated
- Consolidation Loans, if consolidated (besides those used to repay Parent PLUS loans)
Federal Perkins Loans (if consolidated)

Pros and cons of the SAVE plan

Pros

Reduced monthly payment
Forgiveness after 20 years for undergraduate loans and 25 years if your balance includes graduate/professional loans
The government covers accrued interest above your monthly payment

Cons

Any remaining debt forgiven after 20 or 25 years will be taxed as income
Payment can exceed the 10-year standard repayment plan if your income increases

>> Read More: PAYE vs. SAVE

Income-Contingent Repayment (ICR) plan

The Income-Contingent Repayment (ICR) plan is much like the other income-driven repayment plans. However, this income-driven repayment plan includes consolidated 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 the SAVE plan, this program is based on your current income and family size for the life of the loan. This means your payment could exceed what you would pay with a 10-year standard repayment plan if your income increases or your family size decreases over time.

The key characteristics of the ICR plan are as follows:

Repayment period	25 years
Monthly payment amount	Lesser of 20% of your discretionary income or the 12-year fixed repayment plan amount
Eligibility	Any borrower with eligible federal student loans, including Parent PLUS loan borrowers

How does the ICR plan work?

Your payments will always be based on your income and family size, and anyone with eligible student loans can qualify for this loan. Even so, it only makes sense to use this plan if your initial payment would be less than what you would pay with a 10-year standard repayment term.

We’ll use the following hypothetical scenario to calculate the payments and total loan costs of the 10-year standard repayment plan versus the ICR plan:

Total adjusted gross annual income	$60,000
Estimated income growth	5%
Family size	4
State of residence	Arizona
Tax filing status	Married filing jointly
Type of education	Undergraduate degree
Loan balance	$26,946
Interest rate	3.9%

The difference between the ICR plan and the standard repayment plan in this scenario follows:

	ICR plan	Standard repayment plan
First month’s payment	$225	$272
Last month’s payment	$239	$272
Estimated loan forgiveness	$0	$0
Total loan cost	$33,979	$32,585
Origination date	November 2023	November 2023
Payoff date	December 2035	October 2033

If you chose the ICR plan for this scenario, it would take you a little more than two extra years to repay your loan balance compared to the standard repayment plan. As a result, your total loan costs would also be higher under the ICR plan since you would be paying interest for more time.

Since your loan would be repaid in less than 25 years (the maximum repayment term), you wouldn’t receive any loan forgiveness under this income-driven repayment plan.

You can switch to this type of income-driven repayment plan at any time. To do so, you’ll apply and verify your income and family size by logging into the Federal Student Aid website. You can contact your loan servicer with questions or if you need help applying.

Eligible loans for the ICR plans

Direct Loans
- Subsidized and Unsubsidized
- PLUS Loans that were made to professional and/or graduate students
- All Consolidation Loans, including those used to repay Parent PLUS loans
FFEL Loans
- Stafford Loans, if consolidated (both unsubsidized and subsidized)
- PLUS Loans that were made to graduate or professional students, if consolidated
- Parent PLUS Loans, if consolidated
- All Consolidation Loans, including those used to repay Parent PLUS loans
Federal Perkins Loans (if consolidated)

Pros and cons of the ICR plan

Pros

No income eligibility requirement
Forgiveness after 25 years
Consolidated Parent PLUS loans qualify

Cons

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

Should I switch to an income-driven repayment plan?

Switching to an income-driven repayment plan is smart when you cannot afford your monthly payment or are 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 — monthly and over your loan’s life. If you qualify for multiple plans, compare your monthly payment to decide which makes more sense for your situation.

Also, keep in mind that it doesn’t make sense to switch to another plan when:

You can easily afford your current payment: Since the repayment for an IDR plan is longer than the standard 10-year plan, more interest accrues over time and will increase the overall cost of borrowing. So, switching probably doesn’t make sense.
You want to reduce your interest costs. If you thought an IDR plan could save you money on your student loan debt, that might not be true. If you’re looking for a lower rate, you could consider comparing private lenders that refinance student loans.

When refinancing student loans with a private lender, a new lender pays off your old loans and gives you a new one with new terms. In some cases, borrowers may receive lower interest rates that could save them thousands over the life of their loans.

However, before refinancing a federal student loan with a private student loan, ensure you don’t plan to use any federal loan benefits in the future (e.g., loan forgiveness, IDR plans). You’ll lose these benefits if you refinance into a private student loan and won’t be able to get them back.

Scenarios in which you might consider switching to an IDR plan versus staying with your current plan include:

Scenario	Consider switching to an IDR plan if …	Consider staying with your current plan if …
Affordability	You cannot afford your current monthly payment, and switching to an income-driven plan would reduce your monthly obligation, providing financial relief.	You can easily afford your current payment, as the longer repayment period of income-driven plans may increase the overall cost of borrowing due to accrued interest over time.
Financial hardship	You are experiencing financial hardship, and an income-driven plan would offer a more manageable payment based on your income and family size.	Your financial situation is stable, and you don’t anticipate difficulties maintaining your current payment schedule.
Interest cost concerns	You are willing to accept a longer repayment period in exchange for lower monthly payments, even though it may lead to more interest accruing over time.	You are focused on minimizing interest costs and believe staying with your current plan or exploring private refinancing options could be more financially beneficial.

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

Ask the expert

Eric Kirste

CFP®

Choose an income-based plan when you can’t afford your current loan payments. Paying a lower, more affordable amount will buy you time to review the plan to see what is in your best interest when you can afford to pay more. Weigh the long-term costs and forgiveness vs. paying less over the term.

Which income-driven repayment plan is best for me?

The best way to begin the process of determining which income-driven repayment plan is best for you is by accessing the Federal Student Aid loan simulator. The simulator walks you through the decision-making process and allows you to compare the payments under all the possible repayment plans.

By comparing the various plans, you can evaluate which will work best for your needs. As you’re evaluating the plans, ask yourself questions such as:

Are you comfortable with your future payments exceeding the 10-year standard repayment plan? If the answer is no, you may want to avoid signing up for the SAVE and ICR plans, as the payments under these plans could be higher than this amount.
Do you want the lowest possible payment? You might want to consider the SAVE plan since the payments calculated under this plan are based on a lower portion of adjusted gross income. However, remember that your future payment might be higher.
Do you have any consolidated Parent PLUS loans? If yes, the only income-driven repayment plan you can use is the ICR plan. Remember that if you haven’t consolidated your Parent PLUS loans, your loans can become eligible for the ICR plan if you do so.

The Federal Student Aid loan simulator will show you repayment plans that apply to you. As such, this tool can be an excellent way to narrow your choices and find the best possible IDR plan for your situation and needs.

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 somehow, usually by providing your most recent tax return that lists your 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.

You may pay more under income-driven repayment plans—even if you qualify for forgiveness. If you have the ability, it’s likely in your best interest to pay off your loan (rather than wait for forgiveness).

Eric Kirste

CFP®

FAQ

Can anyone qualify for an income-driven repayment plan?

Anyone with eligible federal student loans can qualify for at least one of the four income-driven repayment plans. To see if you qualify for an IDR plan, you can complete a quick 10-minute application after logging into your Federal Student Aid account.

Which income-driven repayment plan results in the lowest monthly payments?

Generally, the SAVE plan may offer the lowest payments for most people, as they’re based on a smaller portion of your income. All the IDR plans are designed to make your monthly payments affordable relative to your income, with the specifics varying by plan.

Do any private student loan lenders offer income-driven repayment options?

No, the official income-driven repayment plan options are unique to federal student loans. Even so, some private lenders may help you temporarily reduce your payments via loan forbearance or deferment programs. Not all lenders offer this, so contact your lender to discuss your options.

What happens if my income changes drastically?

If your income changes drastically under an IDR plan, you can generally expect your payment to change when you recertify your income annually. Any time your income decreases significantly, you can submit paperwork to your student loan servicer to have your monthly payment recalculated.

Can Parent PLUS loans be repaid under an income-driven plan?

Yes, consolidated Parent PLUS loans can be repaid under an Income-Contingent Repayment (ICR) plan, one of the four income-driven repayment plans. Parent PLUS loans are not otherwise considered an eligible student loan type.

How often can you switch income-driven repayment plans?

You can switch your income-driven repayment plan or other federal student loan repayment plan anytime. To see what type of repayment plan might work best for your situation, you can use the Federal Student Aid loan simulator. Plus, you can contact your loan servicer to discuss your options.