What is an income-driven repayment plan and how do you qualify for one? (2023)

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What is an income-driven repayment plan and how do you qualify for one? (1)

Income-driven repayment plans, or IDRs, make it easier to repay federal student loans, adjusting monthly payments based on your income. (Shutterstock)

Student loans are a popular financial resource when it comes to paying for undergraduate and graduate educational expenses. But repaying that debt can be an arduous process, with monthly payments that don’t always feel affordable.

(Video) What's An Income-Driven Repayment Plan? | Student Loan Planner

If you have federal student loans, income-driven repayment plans can make student loan repayment easier, especially if you’re struggling to make scheduled payments. Here’s a look at how income-driven repayment plans work, who can take advantage of them, and why you might want to consider one.

If you’re considering refinancing your student loans instead, Credible lets you easily compare student loan refinance rates.

  • What is an income-driven repayment plan?
  • What are the different types of income-driven repayment plans?
  • How do you apply for an income-driven repayment plan?
  • Pros and cons of income-driven repayment plans
  • Alternatives to income-driven repayment plans

What is an income-driven repayment plan?

An income-driven repayment (IDR) plan is used to calculate your monthly payment obligation on your outstanding federal student loan debt.

IDR plans are intended to make federal student loan payments more affordable for borrowers. These plans take into account both your household/family size and discretionary income when calculating a monthly IDR obligation.

Income-driven repayment plans are available to you as a federal student loan borrower, as long as the loans in question aren’t in default. Unfortunately, these plans aren’t offered to private student loan borrowers.

What are the different types of income-driven repayment plans?

You can choose from four different types of income-driven repayment plans, depending on the type of federal student loan(s) you hold.

Here’s a look at each plan type, the payment amounts they offer, and who’s eligible for them.

Income-Based Repayment (IBR)

In order to qualify for an Income-Based Repayment or IBR Plan, your income needs to be low enough that your IBR payment is lower than it would be with the 10-year Standard Repayment Plan. You may meet this requirement if your federal student loans are more than (or a notable percentage of) your annual discretionary income.

(Video) IBR vs. PAYE | What To Consider Before Choosing an Income Driven Repayment Plan

The IBR Plan is also only offered to new borrowers. A new borrower is a borrower who received disbursement of a Direct Loan on or after Oct. 1, 2011, and had no outstanding Direct Loan Program or FFEL Program loan balance when receiving either type of loan on or after Oct. 1, 2007.

An IBR Plan is typically based on the family size and discretionary income that you have at the time you begin making payments. But if your income changes, it can be recertified.

  • If your income drops — If a decrease in income qualifies you for an IBR Plan below the monthly amount you’d be expected to pay with a StandardRepayment Plan, it can be recalculated and lowered.
  • If your income increases — Your monthly payment may be recalculated and raised, up to the standard 10-year payment amount. If your income increases so much that your IBR Plan payment would be more than the Standard Repayment Plan, you’ll be disqualified from Income-Based Repayment and your payment will be the same as the 10-year Standard Repayment Plan amount (never more).

If your income is low enough, your payment under an IBR Plan could be as low as $0. But new borrowers (as of July 1, 2014, and after) will typically pay a monthly payment equal to 10% of their discretionary income. For borrowers who aren’t new as of that date, an IBR Plan of 15% is typical. But your payment will never be higher than the 10-year Standard Repayment Plan amount.

If you qualify as a new borrower on or after July 1, 2014, your IBR Plan repayment term will be 20 years. If you’re not a new borrower on or after that date, your IBR Plan term is 25 years.

Income-Contingent Repayment (ICR)

The ICR Plan, or Income-Contingent Repayment Plan, is available to eligible federal student loan borrowers, as with the IBR plan, but the difference is that an ICR Plan is always based on income. If your income increases over time, the payment amount can also increase — even if that means a monthly payment that’s higher than the 10-year Standard Repayment Plan amount.

The repayment term for an ICR Plan is 25 years. You can typically expect your monthly payment amount to be the lesser of either 20% of your discretionary income, or the fixed payment amount on a 12-year income-adjusted repayment plan.

An ICR Plan is the only income-based option available to Parent PLUS Loan borrowers, but it isn’t offered directly. To take advantage of this option, Parent PLUS borrowers need to consolidate their loans into a Direct Consolidation Loan, then certify for an ICR Plan.

Pay As You Earn (PAYE)

The Pay As You Earn, or PAYE, Plan has the same eligibility requirements asIBR plans:

(Video) Student loan repayment plans explained and ranked

  • Your monthly payment amount needs to be lower than it would be with a 10-year Standard Repayment Plan.
  • You also need to be a new borrower, with disbursement of a Direct Loan on or after Oct. 1, 2011, and no outstanding Direct Loan or FFEL Loan balance when receiving either type of loan on or after Oct. 1, 2007.

With a PAYE Plan, your repayment term will be 20 years. Though the repayment amount is based on discretionary income and household size, this generally equates to 10% of your income. But the PAYE Plan repayment amount will never exceed your 10-year Standard Repayment Plan amount.

Revised Pay As You Earn Repayment (REPAYE)

The fourth option is the Revised Pay As You Earn Repayment Plan, or REPAYE, which is available to all borrowers with eligible federal student loans. This income-driven plan generally results in a payment equal to 10% of your discretionary income, but it’s always income-based. This means that if your income increases while under this plan, your monthly payment can also increase — even if that results in a payment greater than the 10-year Standard Repayment Plan amount.

With a REPAYE Plan, you’ll follow the plan for 20 years if repaying undergraduate loans, or 25 years for graduate or professional student loan debt.

If an IDR plan isn’t right for you, Credible lets you compare student loan refinance rates without affecting your credit.

How do you apply for an income-driven repayment plan?

In order to apply for an income-driven repayment plan, you’ll need to contact your federal student loan servicer. They’ll guide you through the process and let you know whether or not you qualify for one of the four plans.

You’ll start by filling out an Income-Driven Repayment Plan Request, either online or in paper form. On this form, you’ll either choose the IDR plan you want or opt to allow your loan servicer to choose the one that suits you best, based on your situation and the lowest possible payment amount.

If you have more than one federal loan servicer, you’ll need to fill out an application for each servicer whose loans you want included in an IDR plan.

You’ll need to provide your servicer with some documentation and information, helping them determine your eligibility for an IDR plan and calculate your required payment amount. This may include providing your adjusted gross income or other proof of income, such as previous federal income tax returns.

(Video) Webinar: Fixes to Income Driven Repayment Forgiveness

What is recertification?

Each year, you’ll be expected to recertify your IDR plan. This means updating or confirming your income and family size so that your servicer can renew your eligibility. If you fail to submit the required information for recertification by the deadline, you may face consequences depending on your plan.

  • REPAYE Plan participants — Failure to recertify will result in being removed from the plan altogether. You’ll be placed in an alternate repayment plan automatically, requiring you to pay your loan(s) in full by the earlier of 10 years or your originally scheduled REPAYE Plan end date. But you can choose to leave that alternate plan and repay under any other repayment plan you’re eligible for.
  • IBR, ICR, and PAYE Plan participants — Failing to recertify won’t result in your removal from the plan, but it will mean that your payment is no longer income-based. Instead, your monthly student loan payments will switch to the 10-year Standard Repayment Plan amount for which your loans are eligible.

If you update your information with your servicer later, you may be able to return to your original IDR plan payment amount.

It’s important to note that if you fail to recertify your IBR, PAYE, or REPAYE Plans by the deadline each year, you’ll be responsible for repaying any unpaid interest. This interest will be added to the remaining principal balance of your loan, which will continue to accrue additional interest charges over time.

Pros and cons of income-driven repayment plans

If you have federal student loans, you’ll want to consider some pros and cons of income-driven repayment plans before you apply for one:

Pros of income-driven repayment plans

  • They may reduce your monthly payments. If your income and family size qualify you for an income-driven repayment plan, your monthly payment requirement may be less than with a 10-year Standard Repayment Plan.
  • Remaining balances can be forgiven. Each IDR plan has a maximum repayment term. At the end of that term, any remaining federal student loan balance may be forgiven.
  • You may be able to avoid default. If you’re struggling to keep up with loan payments, an IDR plan may help you avoid defaulting on your loans. Rather than put your loans into forbearance or deferment, an IDR plan can establish a monthly payment that’s proportionate to your discretionary income and likely to be more manageable.

Cons of income-driven repayment plans

  • You have to qualify. In order to qualify for an IDR plan, you’ll need to be a federal student loan borrower; private loans aren’t eligible. Additionally, your family size and income will be used to determine whether or not an IDR plan is an option for your loan repayment.
  • You could be in debt longer. The standard federal student loan repayment term is 10 years, while some income-driven repayment plans stretch this to as many as 25 years. This could mean that you remain in debt for far longer than you would have originally.
  • Even if your remaining debt is forgiven, you could have a hefty tax bill. If you reach the end of your IDR plan term and have a remaining balance, it could be forgiven — but that doesn’t mean you’re free and clear. Any forgiven balance is subject to federal taxes, which could result in a hefty tax bill from the IRS.

Alternatives to income-driven repayment plans

If you don’t qualify for an income-driven repayment plan, consider these alternatives:

  • Extended Repayment Plan — With an Extended Repayment Plan, your federal student loan repayment term is stretchedfor up to 25 years. This means lower payments and a longer time to satisfy the debt.
  • Direct Consolidation Loan — With a Direct Consolidation Loan, you can combine multiple federal loans into a single loan balance. Your new interest rate will be a weighted average of the rates on your existing loans, so you won’t necessarily receive a lower rate. But consolidating your federal loans into a single Direct Consolidation Loan will simplify the repayment process, resulting in just one interest rate and one monthly payment to track.
  • Deferment or forbearance — For federal student loan borrowers with a short-term financial strain, deferment or forbearance can be a temporary option. These allow you to pause your payments for a period of time, though interest will likely continue to accrue and your balance may increase.
  • Refinance into a private student loan — Refinancing student loans can be a great way to consolidate multiple accounts, lower interest rates, get out of debt sooner, reduce monthly payments, or all of the above. You can refinance private student loans, federal student loans, or a combination of both with a private lender. But it’s important to note that refinancing federal student loans into a private loan will cause you to lose access to certain federal benefits, such as IDR plans, Public Service Loan Forgiveness (PSLF), deferment, and forbearance.

With Credible, you can easily compare student loan refinance rates from various lenders in minutes.

Repaying student loan debt can be uncomfortable for many borrowers. But if you have a significant federal student debt burden — especially compared to your discretionary income — an income-driven repayment plan can make it easier and more affordable to satisfy those loan balances.

FAQs

What is income-driven repayment plan? ›

An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size. We offer four income-driven repayment plans: Revised Pay As You Earn Repayment Plan (REPAYE Plan)

How do I qualify for income based repayment? ›

To qualify for IBR, a borrower must demonstrate a “partial financial hardship.” A formula using adjusted gross income (AGI), family size and state of residence will determine how much a borrower is able to pay.

Is there an income limit for income-driven repayment plan? ›

Income-based repayment caps monthly payments at 15% of your monthly discretionary income, where discretionary income is the difference between adjusted gross income (AGI) and 150% of the federal poverty line that corresponds to your family size and the state in which you reside.

Why was I denied income-driven repayment? ›

You can be denied access to some income-driven repayment plans if you don't have a partial financial hardship. The IBR and PAYE plans require you to have a partial financial hardship to enter into repayment under those plans.

How do I verify my income for student loan forgiveness? ›

To verify their income, applicants may be asked to submit their tax returns, tax return transcripts, or a letter verifying that they did not file taxes from 2020 or 2021, Business Insider reported.

Do I qualify for IDR forgiveness? ›

To qualify for forgiveness of any remaining loan balance at the end of the 20-year repayment period, you must have made the equivalent of 20 years of qualifying monthly payments (240 qualifying monthly payments) and 20 years must have elapsed.

Is income based repayment based on household income? ›

Income Tax Calculator: Estimate Your Taxes

If a married borrower files federal income tax returns as married filing separately, the loan payment under IBR is based on just the borrower's income. Otherwise, the loan payment will be based on joint income.

Does Social Security count as income for income based repayment? ›

Social Security is typically not considered income for repaying student loan debt.

Is income driven repayment worth it? ›

Income-driven repayment plans are good for borrowers who are unemployed and who have already exhausted their eligibility for an unemployment deferment, economic hardship deferment, and forbearances. These repayment plans may be a good option for borrowers after the payment pause and interest waiver expires.

What is the income limit for student loan forgiveness? ›

For example, the White House student loan forgiveness fact sheet clearly outlines the fact that Americans can qualify for up to to $10,000 in federal student loan forgiveness if their income is less than $125,000 (or less than $250,000 per couple).

Who is eligible for student loan forgiveness? ›

You qualify to have up to $10,000 forgiven if your loan is held by the Department of Education and you make less than $125,000 individually or $250,000 for a family. If you received Pell grants, which are reserved for undergraduates with the most significant financial need, you can have up to $20,000 forgiven.

Can you get kicked off IBR? ›

Typically, on PAYE or IBR, interest is not capitalized as long as you remain enrolled. However, failing to re-certify your income on time gets you kicked off your IDR plan and placed on the standard 10-year plan. The instant you are kicked out, your interest is capitalized.

What documents do you need for income-driven repayment plan? ›

Here's What You'll Need
  • Federal Student Aid ID. Use your FSA ID to sign in to the StudentLoans.gov website and start your Income-Driven Repayment Plan Request. ...
  • Personal Information. You'll need your address, email address, and phone number.
  • Spousal Information (if you're married) ...
  • Income Information.

Do I have to include my husband's income for student loan repayment? ›

Your spouse's income is included in calculating monthly payments even if you file separate tax returns. However, a borrower may request that only his/her income be included if the borrower certifies that s/he is separated from his/her spouse or is unable to reasonably access the spouse's income information.

Will my student loans be forgiven? ›

To be eligible for forgiveness, you must have federal student loans and earn less than $125,000 annually (or $250,000 per household). Borrowers who meet that criteria can get up to $10,000 in debt cancellation. If you also received a Pell Grant during your education, you can qualify for up to $20,000 in forgiveness.

Do parents apply for student loan forgiveness? ›

Both students and parents should apply for forgiveness,” Kantrowitz said. Here's what to know.

How many people have applied for student debt relief? ›

President Joe Biden's "Student Relief Program" is up and running, meaning you can potentially cancel up to $20,000 in student loan debt. The program went live on Monday, and so far, the White House says more than 8 million people have already applied for help.

Which of the following may not make you eligible for loan forgiveness? ›

Employment Is Not Qualified

Borrowers who work for only a for-profit employer are not eligible for loan forgiveness. Borrowers must work full-time for the federal, state, county or local government or for a 501(c)(3) tax-exempt charitable organization.

Are student loans forgiven after 20 years? ›

If you have federal student loans and are making payments under an income-driven repayment (IDR) plan, you may be able to have your loans forgiven after 20 years. That can give you hope, and a tangible goal to work toward as you continue to make your payments.

Are federal student loans forgiven after 10 years? ›

Under the federal program, eligible borrowers can have their loans discharged after 10 years if they meet eligibility requirements.

What age does student loan get wiped? ›

And most importantly: Student loans are forgiven after 25-30 years after you graduate, or when you turn 65, depending on when and where you took out your loan.

Does Income Based Repayment get forgiven? ›

Income-driven repayment plan forgiveness timeline

Federal student loan borrowers who choose a repayment plan based on their income can get their loans forgiven after making at least 20 years' worth of payments.

How does marriage affect income based repayment? ›

Generally, whenever we use joint income to calculate your payment amount, we consider your spouse's federal student loan debt and prorate your payment based on your share of the combined federal student loan debt.

Can student loans be forgiven after age 65? ›

Are student loans forgiven when you retire? The federal government doesn't forgive student loans at age 50, 65, or when borrowers retire and start drawing Social Security benefits. So, for example, you'll still owe Parent PLUS Loans, FFEL Loans, and Direct Loans after you retire.

Do retirees qualify for student loan forgiveness? ›

“People close to or in retirement who are unhindered with student loans don't have the burden of maintaining those monthly payments, freeing up more money for retirement accounts and investments,” Reynolds says. The federal government now offers up to $20,000 in student loan forgiveness.

Are student loans Cancelled after 25 years? ›

Any outstanding balance on your loan will be forgiven if you haven't repaid your loan in full after 20 years or 25 years, depending on when you received your first loans. You may have to pay income tax on any amount that is forgiven.

Does income driven repayment affect credit score? ›

How Does Income-Based Repayment Affect Credit Scores? Getting on an IBR plan won't directly impact your credit score because you aren't changing your total loan balance or opening a new credit account. However, lenders consider more than just your credit score when you apply for credit.

What is the difference between income-based repayment and income contingent repayment? ›

ICR takes into account total Direct Loan debt in addition to income and family size. Under IBR, the government pays the remaining unpaid accrued interest on the subsidized loans for up to three consecutive years. Under ICR, the borrower is responsible for paying all of the interest that accrues on his or her loans.

How many years is 120 monthly payments? ›

Standard repayment allows you to pay your loan(s) over 10 years in 120 equal monthly installments. Because you begin paying down the principal balance immediately, standard repayment may cost you less over the life of the loan compared to some other plans.

Are student loans forgiven after 20 years? ›

If you have federal student loans and are making payments under an income-driven repayment (IDR) plan, you may be able to have your loans forgiven after 20 years. That can give you hope, and a tangible goal to work toward as you continue to make your payments.

Is income-driven repayment worth it? ›

Income-driven repayment plans are good for borrowers who are unemployed and who have already exhausted their eligibility for an unemployment deferment, economic hardship deferment, and forbearances. These repayment plans may be a good option for borrowers after the payment pause and interest waiver expires.

Does Income Based Repayment get forgiven? ›

Income-driven repayment plan forgiveness timeline

Federal student loan borrowers who choose a repayment plan based on their income can get their loans forgiven after making at least 20 years' worth of payments.

Who qualifies for IBR for new borrowers? ›

To qualify for both the original and new IBR plans, you must be able to demonstrate a partial financial hardship. For new borrowers who took out their loans on or after July 1, 2014, monthly payments are equal to 10% of your discretionary income, and any unpaid balance will be forgiven after 20 years of payments.

How many years until student loans are forgiven? ›

Nearly all federal student loan borrowers are eligible for one of these options. After making qualifying payments for 20 years, you could get student loan forgiveness.

Does income based repayment include spouse income? ›

If you're enrolled in an income-driven repayment plan and you're married, we not only ask about your income, but also about your spouse's income as well. Income-driven repayment plans generally set your student loan payment according to your adjusted gross income (AGI).

What is the income limit for student loan forgiveness? ›

For example, the White House student loan forgiveness fact sheet clearly outlines the fact that Americans can qualify for up to to $10,000 in federal student loan forgiveness if their income is less than $125,000 (or less than $250,000 per couple).

What loans are eligible for forgiveness? ›

Nearly every type of federal student loan qualifies for forgiveness, including direct subsidized or unsubsidized loans and graduate or parent PLUS loans. If your loans qualified for the federal student loan payment pause, they're eligible for this forgiveness opportunity.

Are student loans forgiven after 10 years? ›

Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less. The Department of Education estimates that this reform will allow nearly all community college borrowers to be debt-free within 10 years.

What is considered a qualifying payment? ›

Qualifying repayment plans include all of the income-driven repayment (IDR) plans (plans that base your monthly payment on your income). While payments made under the 10-year Standard Repayment Plan are qualifying payments, you would have to change to an IDR plan to benefit from PSLF.

Who qualifies for Biden loans? ›

Borrowers are eligible for this relief if their individual income is less than $125,000 or $250,000 for households. Get details about one-time student loan debt relief.

Are student loans Cancelled after 25 years? ›

Any outstanding balance on your loan will be forgiven if you haven't repaid your loan in full after 20 years or 25 years, depending on when you received your first loans. You may have to pay income tax on any amount that is forgiven.

Are student loans forgiven after death? ›

If you die, then your federal student loans will be discharged after the required proof of death is submitted.

Videos

1. Part 1: Federal Income-Driven Repayment Plans and State Student Loan Legislation
(NCSLorg)
2. How to Confirm Which Type of Income-Driven Repayment Plan You’re On
(Student Loan Planner)
3. Income Drive Repayment Plan-Decoding IBR, PAYE, REPAYE, ICR
(Dr. Melissa Cohen)
4. Which Income Driven Repayment Plan is Best IBR, PAYE, or REPAYE
(AAMCtoday)
5. IDR Plan | Lower your monthly student loan payments with an Income-Driven Repayment Plan!
(Melisa Ford - Damsel of Success)
6. Choosing an Income Plan: PAYE versus REPAYE - Spring 2020
(American Dental Education Association)
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