Income-driven repayment plans are repayment options that the federal government offers exclusively for federal student loans. Using these plans you pay a percentage of your discretionary income for the set period. At that point, the remaining balance will be allowed.
According to 2024 data from the Federal Office of Student Aid, approximately 28.5% of student borrowers are currently registered in income-driven repayment plans. If you are struggling to pay for your federal student loan, there are a few things to keep in mind before signing up, but your income-driven repayment plan may be correct.
What are the most common income-driven repayment plans?
The four most common federal income-driven repayment plans are paid to earn (pay) and save you valuable education (SAVE), income-based repayment (IBR), and income-based repayment (ICR). Students with federal direct loans can qualify for all plans, but parents are eligible for ICR only and only if they consolidate those loans.
Each of the four income-driven repayment plans comes with its own monthly payments and terms.
| Plan | Monthly payment | New repayment period | Eligible loans |
| Pay as you earn (Pay) | 10% of discretionary income | 20 years | Direct loans made to students. Direct and FFEL integrated loans made to parents who were not repaid. ffel; Perkinslone when integrated |
| Save valuable education (save) | Weighted average of 5% of discretionary income (undergraduate borrowers) or 5-10% of discretionary income (borrowers with graduate loans) | 20 years for undergraduate loans, 25 years with graduate and professional loans, or combination of undergraduate and graduate loans | Direct loans made to students. Direct and FFEL integrated loans made to parents who were not repaid. FFEL loans if integrated. Perkinslone if integrated |
| Income-based repayment (IBR) | If you are a new borrower after July 1, 2014, 10% of your discretionary income, and 15% of your discretionary income if you borrowed after July 1, 2014 | 20 years if the new borrower is after July 1, 2014. 25 years if rented after July 1, 2014 | Direct loans made to students. Direct and FFEL integrated loans and balances made to parents who were not repaid; FFEL loans made to students. Perkinslone if integrated |
| Income-dependent repayment (ICR) | 20% of discretionary income | 25 years | Direct loans, direct plus loans, direct integrated loans (including loans made to parents) |
Pros and cons of income-driven repayment plans
While income-driven repayment plans may seem obvious to a struggling borrower, it is important to be aware of both benefits and shortcomings before applying.
Strong Points
- More affordable payments: An income-driven repayment plan can reduce monthly payments by a significant amount. Low-income borrowers can make as low as $0.
- Possibility of forgiveness: If you still have balances at the end of the new repayment period, it is allowed.
- There is no impact on your credit score: Credit checks are not required to register for an income-driven repayment plan.
Cons
- Your balance may increase: If your monthly payment is less than the interest you pay, this amount can be added to your loan balance, and if you leave your income-driven repayment plan, your payments will be higher.
- You must reapply every year: The Ministry of Education recertifies your income and the size of your family each year. If you miss the deadline, you will be reverting to your standard repayment plan.
- Complex Eligibility: If you have a student loan from the Federal Family Education Loan (FFEL) program or have a parent loan, you will need to consolidate the loan before applying for most income-driven repayment plans. Factors such as payment date and marriage status status may also limit options.
Is IDR plans worth it?
Income-driven repayments are not appropriate for everyone. When evaluating options, think carefully about your situation and goals before deciding to enroll in an income-driven repayment plan or other student loan plans. That said, there are some situations worth considering.
- Your student loan payments are higher than your income: Income-driven repayments are based on actual income, so switching plans can save you hundreds of dollars each month.
- You are eligible for the Public Service Loan Forgiveness (PSLF) program: An income-driven repayment plan is a requirement for PSLF, allowing workers to remain on student loan balances in public services jobs in ten years.
- You have lost your job recently or reduced your salary: Income-driven repayment plans require you to recertify your income each year, so your payments can rise or fall depending on what you are actually making.
- You are approaching the beginning of your student loan repayment plan: Income-driven repayments begin a new repayment plan that usually lasts 20 or 25 years. If you only have a few years left on your student loan, or if you have a low balance, it may not make sense to extend that period.
How to choose an IDR plan
There are very specific criteria for income-driven repayment plans. Consider eligibility requirements and choose the right one.
- An IBR or PAYE plan could result in a minimum monthly payment due to a federal injunction halting the save plan.
- If your income is expected to increase significantly, your IBR plan will lower monthly payments based on what you pay in your 10-year repayment plan.
- If you have a Parent Plus loan, the only option is the ICR plan. And only if you combine them.
What are the income requirements for an IDR?
Income-driven repayment plans are based on monthly payments based on your discretionary income. For PAYE and IBR plans, this figure is calculated by taking a 150% difference between annual household income and federal poverty guidelines for your household size and residence status. If you are using an ICR plan, it is 100% of the guidelines. With SAVE, it’s 225%.
If your income is calculated or less than the federal poverty guidelines, you may not have any monthly payments. Even if it’s expensive, you could still get a lower payment than you currently do. You can use the Ministry of Education’s loan simulator to know what your payment is.
Conclusion
Exploring income-driven repayment plans can help you reach more affordable monthly payments with federal student loans. Determining your eligibility first and recertifying your income each year can be a small hassle, but switching to an income-driven repayment method may allow you to free up your monthly budget room.
Without IDR qualifying, you can refinance with a private lender to lower your payments, but all federal protection and forgiveness are lost. Check current student interest rates and consider whether future protection is required before refinancing.
