Written By Clint Proctor
Often when people use the term “income-based repayment,” what they really mean are all the plans that fall under federal “income-driven repayment. The “Income-Based Repayment Plan” (IBR) is only one of the many income-driven repayment (IDR) plans.
Other income-driven plans include Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income-Contingent Repayment (ICR).
The fact that the federal government decided to name one of its income-driven plans “income-based repayment” is unnecessarily confusing. Consequently, many people mistakenly say they’re on Income-Based Repayment when they're actually on PAYE, REPAYE or ICR.
Note that the COVID-19 pandemic and federal forbearance relief measures have impacted many student loan borrowers. To learn more about your options, check out our guide.
How many income-driven repayment plans are there?
There are currently four federal income-driven student loan repayment plans.
- IBR: Income-Based Repayment
- ICR: Income-Contingent Repayment Plan
- REPAYE: Revised Pay As You Earn
- PAYE: Pay As You Earn
The remainder of this guide breaks down the similarities and differences between these four plans. You’ll also learn how to use these plans and what forgiveness options each come with.
Estimating your monthly payment under each repayment plan
With each of the IDR plans, your payment will be a percentage of your discretionary income. Before taking a look at the percentage that each plan uses, it’s important to understand what “discretionary income” even is.
What is discretionary income?
While many people think of discretionary income as being their income minus expenses, the U.S. Department of Education determines your discretionary income a different way.
For REPAYE, PAYE, and IBR, your discretionary income is whatever money you bring in that’s over 150% of the federal poverty guidelines for your family size and state of residence. On ICR, discretionary income is your annual income that exceeds 100% of your poverty guideline.
For example, the current poverty guideline for a family size of one is $12,880. When you take $12,880 and multiply it by 150%, you get $19,320. If your adjusted gross income (AGI) was $40,000, you would subtract $19,320 from that number to find your discretionary income — $20,680 ($40,000 – $19,320 = $20,680).
For a more detailed explanation of how discretionary income works, check out Student Loan Planner®’s discretionary income guide.
How monthly payments are calculated
This is how your monthly student loan payment amount is calculated under each IDR plan.
If this all seems a bit confusing to you, you’re not alone! The good news is you don’t have to do a bunch of manual math calculations to estimate your payment amount under each plan.
Let Student Loan Planner®’s student loan calculator do all the heavy work for you and tell you what your estimated monthly payment amount would be under each IDR plan.
You can also use the federal government’s repayment estimator.
How to find out if you’re eligible for income-driven repayment
Only federal student loans qualify for an IDR plan. Student loans received from a private lender are not eligible.
Also, since no new FFEL loans have been made since June 30, 2010, only Direct Loan Program borrowers would qualify as new borrowers on or after July 1, 2014. For this reason, the IBR plan is the only option for Federal Family Education Loan Program (FFEL) borrowers.
However, FFEL loans can become eligible for the other plans if they are consolidated into a Direct Consolidation Loan.
Income requirements
All federal student loan borrowers with eligible federal student loans can use the REPAYE or ICR plans, regardless of income.
But with PAYE and IBR, you won’t be eligible if your monthly payments under these plans would be more than it would be on a 10-year Standard Repayment Plan.
It’s important to note, though, that once you’re accepted for PAYE or IBR, you’re allowed to remain on the plans even if your monthly payment rises to the same amount as it would have been under the 10-year Standard Repayment plan.
This is important for remaining eligible for Public Service Loan Forgiveness (PSLF). Don’t let your loan servicer kick you off of IBR because “you no longer qualify.” Once you’re accepted to PAYE or IBR, you can stay on the plans for the remainder of your loan repayment.
Additional PAYE eligibility requirements
In addition to the income requirements for PAYE, you’ll also need to be a “new borrower.” What does that mean? It means that you meet the following requirements:
- Your federal student loans were taken out after Oct. 1, 2007.
- You didn’t have a federal student loan balance when taking out those loans.
- You received a Direct Loan on or after Oct. 1, 2011.
Most students who attended school in 2007 or later should meet these requirements.
Which income-driven repayment plans are eligible for forgiveness?
There are two main federal loan forgiveness options that are directly related to IDR plans. The first way to receive forgiveness is by completing your entire repayment plan. Once you do, any remaining balance is forgiven.
The second forgiveness option connected with income-driven repayment plans is PSLF. Let’s take a closer look at the details for both.
Repayment periods
This is how long you’ll need to make payments on each plan before you’re eligible to have your remaining balance forgiven.
If you’d like to see exactly what your remaining forgivable balance would be under each plan, our calculator can help.
Public Service Loan Forgiveness
All income-driven repayment plans are eligible for PSLF.
Once you’ve made 10 years of qualifying payments under any of these plans, you may qualify for forgiveness under the PSLF program.
Applying for income-driven repayment
To apply, you’ll need to fill out the Income-Driven Repayment Plan Request Form on StudentLoans.gov or mail in a paper form.
You’ll also need to provide income information. You can use an income tax return from the last two years or provide alternative income documentation.
Recertifying your annual income and family size
Once you’re on an IDR plan, you’ll need to recertify your income and family size each year. Here’s what will happen if you don’t recertify by the deadline:
- On REPAYE, you’ll be removed from the plan and be placed on an alternative repayment plan.
- On PAYE, IBR or ICR, your student loan servicer will assume you have a family size of one and will change your monthly payment to whatever it would be on the 10-year Standard Repayment Plan.
- Under the REPAYE, PAYE and IBR plan, any unpaid interest will capitalize (be added to your principal).
Your student loan servicer is required to let you know your annual recertification deadline date well ahead of time. Once you know this date, don’t sit on it. Recertify as soon as you can at StudentLoans.gov or by using the paper form.
How to decide which income-driven repayment plan to choose
The official answer that the Department of Education gives is that your student loan servicer should be able to tell you which income-driven repayment plan would be best. And if you happen to get the right person on the phone, this could be true.
However, some servicers are better than others, and some servicers have downright terrible reputations. When you’re trying to decide which repayment option would be best, getting in-depth help from a Student Loan Planner® consultant could be a great decision.
There are lots of variables that need to be considered before deciding which repayment plan would be best (or whether you should even choose an IDR plan at all). But for starters, here are a few questions you’ll want to consider when picking an income-driven student loan repayment plan.
1. Do you expect your income to significantly increase or stay mostly the same?
If you expect your income to rise significantly, you may want to choose a plan like PAYE or IBR, which will cap your monthly payment at whatever you would have paid under the 10-year Standard Repayment Plan.
With REPAYE, on the other hand, your payment will always be 10% of your discretionary income. This means if your income rises significantly, your payment under REPAYE could become higher than you would have paid under the 10-year Standard Repayment Plan.
On the other hand, with PAYE and IBR, your unpaid interest will capitalize if you stop making payments based on income. With REPAYE, the government offers subsidies to pay for a significant portion of this unpaid interest. This could help borrowers avoid excessive interest capitalization.
Again, this can get really confusing. You’ll want to talk to your loan servicer or a Student Loan Planner® consultant to get a more detailed answer as to which plan you should pick based on your current income and income-growth expectations.
2. What kind of loans do you have?
The types of federal student loan debt you have can make a big difference in which plan you should choose. For instance, if you’re a parent who has Parent PLUS Loans, the only income-driven repayment plan you can become eligible for (via a Direct Consolidation Loan) is ICR.
In another example, graduate loan borrowers may want to avoid REPAYE. This is because REPAYE makes borrowers with grad loans make an extra five years of payments (25 years instead of 20) before they’re eligible for forgiveness.
3. Are you single or married?
Are you married, or do you have plans to be married soon? If so, you may want to stay away from the REPAYE plan, as it will count your spouse’s income when calculating monthly payments.
With other plans, married borrowers can use their individual incomes as long as they file their taxes as married filed separately.
Is choosing an income-driven repayment plan the right decision?
Everyone’s situation is different. There is no one-size-fits-all answer to the question of whether or not you should choose an IDR plan.
The fact of the matter is that you’ll often pay more in total interest over the life of the loan by choosing an income-driven plan. But, in the meantime, your cash flow situation could be significantly better, which is a big deal. Also, if you want to earn PSLF, you’ll need to be on an income-driven plan.
On the other hand, if you can handle your monthly payments under the 10-year Standard Repayment Plan and you aren’t working toward PSLF, you may be better off refinancing your student loans to a better rate or repayment term.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
