An IDR plan may be appropriate for you if your outstanding federal student loan debt is a sizable amount of your annual income. Consider submitting an application for an income-driven repayment (IDR) plan if you have federal student loans. If your present income is insufficient to pay off your student loan debt, that can be a suitable option.
What is Income-Driven Repayment Plan ?
Income-driven repayment (IDR) plans assign you a monthly payment based on your income and family size in an effort to make your student loan debt more affordable.
Student loan payments are capped under income-driven repayment plans at a portion of your discretionary income. That is the portion of your income that is left over after taxes, other required fees, and expenditures for necessities. The exact sum varies depending on the plan. Depending on the type of federal student loans you have, you may be eligible for one of four income-driven repayment plans.
The typical repayment duration for federal student loans is ten years. Enter an income-driven repayment (IDR) program if a 10-year payback horizon renders your monthly payments unaffordable. Income-driven programs spread payouts over a 20 to 25 year period. If you have made all of your required payments by the end of that period, any remaining loan balance is forgiven. Payments will normally be capped at 10%, 15%, or 20% of your discretionary income, depending on the plan, and will be based on your household income and family size.
How Does the Income-Driven Repayment Plan Work ?
Depending on your plan, an income-driven repayment plan enables you to make payments based on your income for a predetermined number of years. As long as you've complied with all of your program's criteria, any outstanding balance will be waived at the conclusion of your mandatory payment period.
Your payment under an income-driven repayment plan could be as low as $0. After twenty or twenty-five years of payments, IDR programs forgive your remaining balance. Your monthly payment will be modified according to your income and family size each year, and you will be required to recertify your income to the federal government.
New Income-Driven Repayment Plan
An income-driven repayment plan bases the monthly payment amount not on the loan debt but rather on your discretionary income. After meeting basic needs like food and shelter, discretionary money is what remains.
The federal poverty threshold for your family size and area, less your household income, is now used by the Education Department to determine your discretionary income. Under the revised proposal, the limit on discretionary income is set at 225% of the federal poverty level.
Borrowers are required to pay 10% of their discretionary income each month under the existing income-driven repayment plans. Income-driven repayment for student loans will be capped at 5% of discretionary income under the new arrangement. This means that borrowers with undergraduate loans will pay only half of what is currently necessary, in addition to the reduced repayment amount based on the change in discretionary income calculations.
Who is Eligible for Income-Driven Repayment Plan ?
Your income, the size of your family, your loan balance(s), and the types of federal student loans you have will determine whether you are eligible for the Income-Driven Repayment Plan. Under any of the income-driven repayment plans, defaulted loans are not eligible for repayment.
Depending on which income-driven repayment plan the borrower selects and when the student borrowed, there may be eligibility criteria. The following are various eligibility requirements for various plans :
REPAYE Plan :
Payments under REPAYE plan may be made by any borrower with eligible federal student loans.
PAYE and IBR Plans :
Each of these plans has eligibility requirement that you must fulfill in order to be eligible for the plan. According to your income and family size, the payment you would be required to make under the PAYE or IBR plan must be lower than what you would pay under the Standard Repayment Plan with a 10 year repayment period in order for you to be eligible.
- You won't benefit from having your monthly payment amount based on your income if the amount you would have to pay under the PAYE or IBR plan (based on your income and family size) is greater than what you would have to pay under the 10-year Standard Repayment Plan, therefore you don't qualify.
- Generally speaking, if your federal student loan debt exceeds your annual discretionary income or accounts for a size-able amount of your income, you'll meet this condition.
You must be a new borrower in order to be eligible for the PAYE Plan in addition to fulfilling the aforementioned requirements. This means that you had to get a Direct Loan or FFEL Program loan on or after October 1, 2007, and you had to receive a disbursement of a Direct Loan on or after October 1, 2011, with no outstanding balance on a Direct Loan or FFEL Program loan.
ICR Plan :
Payments under ICR plan may be made by any borrower with eligible federal student loans. ICR plan is only available income-driven repayment option for parent PLUS loan borrowers. Parent borrowers may combine their Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan and then repay the new consolidation loan via the ICR Plan, even though PLUS loans granted to parents cannot be repaid under any of the income-driven repayment plans (including the ICR Plan) (though not under any other income-driven plan).
Types of Federal Student Loans Repay under Income-Driven Repayment Plan
The following categories of federal student loans are eligible for repayment under each of the income-driven repayment plans :
REPAYE Plan :
Eligible :
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans (not repay any PLUS loans made to parents)
Eligible if Consolidated :
- Federal Perkins Loans
- Subsidized Federal Stafford Loans (from FFEL Program)
- Unsubsidized Federal Stafford Loans (from FFEL Program)
- FFEL PLUS Loans made to graduate or professional students
- FFEL Consolidation Loans (not repay any PLUS loans made to parents)
Not Eligible :
- Direct PLUS Loans made to parents
- Direct Consolidation Loans (repaid PLUS loans made to parents)
- FFEL PLUS Loans made to parents
- FFEL Consolidation Loans (repaid PLUS loans made to parents)
PAYE Plan :
Eligible :
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to professional or graduate students
- Direct Consolidation Loans that did not repay any PLUS loans made to parents
Eligible if Consolidated :
- FFEL PLUS Loans made to graduate or professional students
- FFEL Consolidation Loans (not repay any PLUS loans made to parents)
- Federal Perkins Loans
- Subsidized Federal Stafford Loans (from the FFEL Program)
- Unsubsidized Federal Stafford Loans (from the FFEL Program)
Not Eligible :
- Direct PLUS Loans made to parents
- Direct Consolidation Loans (repaid PLUS loans made to parents)
- FFEL Consolidation Loans (repaid PLUS loans made to parents)
- Direct PLUS Loans made to parents
IBR Plan :
Eligible :
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans (not repay any PLUS loans made to parents)
- Subsidized Federal Stafford Loans (from FFEL Program)
- Unsubsidized Federal Stafford Loans (from FFEL Program)
- FFEL PLUS Loans made to graduate or professional students
- FFEL Consolidation Loans (not repay any PLUS loans made to parents)
Eligible if Consolidated :
- Federal Perkins Loans
Not Eligible :
- Direct PLUS Loans made to parents
- Direct Consolidation Loans (repaid PLUS loans made to parents)
- FFEL PLUS Loans made to parents
- FFEL Consolidation Loans (repaid PLUS loans made to parents)
ICR Plan :
Eligible :
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans (not repay any PLUS loans made to parents)
- Direct Consolidation Loans (repaid PLUS loans made to parents)
Eligible if Consolidated :
- Federal Perkins Loans
- Direct PLUS Loans made to parents
- Subsidized Federal Stafford Loans (from FFEL Program)
- Unsubsidized Federal Stafford Loans (from FFEL Program)
- FFEL PLUS Loans made to graduate or professional students
- FFEL PLUS Loans made to parents
- FFEL Consolidation Loans (not repay any PLUS loans made to parents)
- FFEL Consolidation Loans (repaid PLUS loans made to parents)
Types of Income-Driven Repayment Plan
Based on your salary and family size, an income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable. You must submit an application if you want to repay your federal student loans using an income-driven plan.
The U.S. Department of Education offers the following four types of income-driven repayment plans :
1) Revised Pay as You Earn Repayment (REPAYE) Plan :
Under REPAYE plan, student loans for undergraduate studies have a 20 year repayment period and graduate or professional study loans have a 25 year repayment period. The standard monthly payment is 10% of your discretionary income.
2) Pay as You Earn Repayment (PAYE) Plan :
The PAYE plan has a 20 year repayment period. Normal monthly payments are 10% of your discretionary income, but they cannot exceed the 10 year Standard Repayment Plan.
3) Income-Based Repayment (IBR) Plan :
The repayment period for IBR plan is 20 years, with monthly payments typically equaling 10% of your discretionary income, if you did not already have an outstanding balance when you acquired a direct loan or Federal Family Education Loan (FFEL) on or after July 1, 2014. On the other hand, let's say you had an unpaid debt when you got a direct loan or an FFEL on or after July 1, 2014. In that situation, the plan's 25-year payback duration and standard monthly payments of 15% of your discretionary income apply. Monthly payments cannot exceed the 10-year Standard Repayment Plan amount in any scenario.
4) Income-Contingent Repayment (ICR) Plan :
The ICR plan has a 25 year repayment period. Depending on your income, monthly payments are either 20% of your discretionary income or, if a repayment plan with a fixed 12 year payment is chosen, the corresponding amount.
Repayment Plan | Percent of Discretionary Income | Definition of Discretionary Income | Repayment Term | Repayment Term |
ICR | 20% | AGI – 100% PL | 300 payments | 300 payments |
IBR | 15% | AGI – 150% PL | 300 payments | 300 payments |
PAYE | 10% | AGI – 150% PL | 240 payments | 240 payments |
REPAYE | 10% | AGI – 150% PL | 240 payments | 300 payments |
Repayment Period under Income-Driven Repayment Plans
To make sure that borrowers aren't in debt forever, the Department of Education sets limits on how long you must make payments under an income-driven plan. The repayment duration for each income-driven repayment plan vary.
REPAYE Plan : 25 years if you took out loans for graduate or professional studies, or 20 years if all of your loans were for undergraduate studies.
PAYE Plan : 20 years
IBR Plan : If you become a new borrower on or after July 1, 2014, your term will be 20 years, or 25 years if you’re not a new borrower on or after July 1, 2014.
ICR Plan : 25 years
NOTE :
Any remaining balance is forgiven at the end of your repayment period. The size of your loan and your monthly payments will determine whether you have any remaining debt to forgive.
How is Monthly Payment Amount Calculated under IDR Plan ?
In an income-driven repayment plan, your monthly payment is often a percentage of your discretionary income. Depending on the plan, the proportion varies.
REPAYE Plan : Generally 10% of your discretionary income.
PAYE Plan : Generally 10% of your discretionary income, but never more than 10 year Standard Repayment Plan amount.
IBR Plan : If you're a new borrower on or after July 1, 2014, typically 10% of your discretionary income, but never more than the amount of the 10 year Standard Repayment Plan and If you are not a new borrower on or after July 1, 2014, typically 15% of your discretionary income, but never more than the amount of the 10 year Standard Repayment Plan.
ICR Plan : What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income or 20% of your discretionary income whichever is less.
Income-Driven Repayment Plan Calculator
Comparison of estimated monthly payment amounts for all federal student loan repayment plans, including income-driven plans, is possible with Loan Simulator. This comparison is crucial since, depending on your unique situation, the income-driven plans could not provide you the lowest payment amount. Under a different repayment schedule, your payment might be cheaper.
Income-Driven Repayment Plan Interest
In certain of the income-driven repayment plans, the federal government covers all or a portion of the accrued but unpaid interest on certain loans.
The federal government pays 50% of the accrued but unpaid interest on unsubsidized loans in REPAYE and 100% of the accrued but unpaid interest on subsidized loans in IBR, PAYE, and REPAYE, during the first three years.
The federal government pays 50% of the interest on all federal student loans in REPAYE for the remaining period of the repayment term. All additional interest is still the borrower's responsibility and depending on the repayment plan, may be capitalized if it remains unpaid.
How to Apply for Income-Driven Repayment Plan ?
If you have any questions prior to submitting an application for an income-driven repayment plan, speak with your loan servicer. Your loan servicer will help you to decide, which plans is right for you.
You must submit an application known as the Income-Driven Repayment Plan Request in order to apply for the IDR Plan. The application is available online or on paper, which you can obtain from your loan servicer.
When you apply, you will be requested to submit information about your income that will be used to compute your monthly payment amount under all income-driven repayment plans, as well as to determine your eligibility for the PAYE or IBR plans. This could be alternate proof of income or your adjusted gross income (AGI).
You can retrieve your AGI from your federal income tax return using the Internal Revenue Service (IRS) Data Retrieval Tool when submitting an online application. You must also submit a printed copy of your most recent federal income tax return or IRS tax return transcript if you submit an application on paper.
NOTE :
You must submit a separate request to each servicer, if you have more than one servicer for the loans you want to repay using an income-driven plan.
Steps to Get Income-Driven Repayment Plan
To be eligible for loan forgiveness under an income-driven plan, you must follow a few essential steps :
- Apply for an income-driven plan at StudentAid.gov or with your loan servicer directly.
- In order to determine your eligibility for an income-driven plan and to calculate your monthly payments, please provide the necessary information, including the size of your family and your marital status.
- Make the mandated monthly payments for the specified number of years.
- Whether or not anything has changed, you must recertify your eligibility and income each year.
You must repeat the same steps to recertify each year. The Federal Government will determine if you still qualify for this type of plan by receiving your updated income and personal information, and will then offer you the lowest monthly payment amount based on your circumstances.
Contact Income-Driven Repayment Plan
Frequently Asked Questions
Does my income need to be recertified each year?
Yes. However, you can provide your information to your loan servicer and they will recalculate your payment if your situation changes before your yearly deadline to recertify for instance, if your income drops or you lose your job. In order to have your payment instantly adjusted, let your loan servicer know that you're submitting the application before your annual deadline.
What additional options do I have if I require help repaying my student loans?
If an income-driven repayment plan is not the best choice for you, get in touch with your loan servicer to talk about your alternative options. Through the Extended Payments Plan or debt consolidation, you might be able to prolong your repayment duration. Additionally, you might be able to abridge repayment through a deferment or forbearance.
Is an income-driven repayment plan right for me?
Your federal student loan payments will often be reduced under income-driven repayment options. You will, however, probably wind up paying more in interest over time, sometimes much more, every time you make smaller installments or lengthen your payback period. Additionally, if you still owe money at the end of your payback period, you can be subject to paying income tax on any amount that is forgiven in accordance with current Internal Revenue Service regulations.
Will my monthly payments under an income-driven repayment plan always be the same?
No, Your required monthly payment amount under any of the income-driven repayment plans may alter depending on your annual income or family size. You must "recertify" your family size and income each year. This means that in order for your loan servicer to recalculate your payment, you must give them new information on your income and family size. Even if your income or family size haven't changed, you still need to do this.
Is there an income limit for income-driven repayment plans?
Yes, you must meet certain standards, including income, in order to be eligible for an income-driven repayment plan. This cap varies depending on your plan selection, marital status, and if you have children. Your income will be taken into account when calculating your monthly payments, among other things.
How long do income-driven repayment plans last?
Your IDR plan will remain in effect as long as you meet the requirements and recertify each year. Until you completely repay the debt or meet the requirements for loan forgiveness, you must make monthly payments under your income-based repayment plan. Depending on the type of plan and your particular circumstances, your debt will become eligible for loan forgiveness after either 20 or 25 years of acceptable payments.
Are IDR plans forgiven after 20 years?
After 25 years, and in certain cases earlier, all income-driven repayment programs are eligible for loan forgiveness. After making the required payments for 20 years for PAYE loans and 25 years for ICR loans, your remaining loan balance will be forgiven. Depending on the terms of your loan or your course of study, your balance will be eligible for forgiveness after 20 or 25 years of qualifying payments for both IBR and REPAYE loans.
Will income-based repayment plans hurt my credit score?
No, your credit score won't suffer as long as you pay your monthly bills on time and adhere to all other loan requirements. In reality, by enrolling in an IBR plan, you could prevent missing your monthly payments and safeguard against a bad effect on your credit score.
What are the disadvantages of income-based repayment?
More interest will be charged on your loans because you'll be paying them back over a longer period of time. Thus, even if you are eligible for forgiveness, you can still have to pay more under these arrangements. You'll probably finish repaying your loan before the forgiveness begins.
What are the benefits of income-driven repayment plans?
Your monthly payment need may be lower than with a 10-year Standard Repayment Plan if your income and family size qualifies you for an income-driven repayment plan. There is a maximum repayment duration for each IDR plan. Any outstanding balance on federal student loans may be forgiven at the conclusion of that period. An IDR plan could save you from going into default on your debts if you're having trouble making your payments.
Does everyone qualify for income-driven repayment plan?
IBR has tougher eligibility requirements than other IDR plans like ICR or REPAYE, thus not everyone will be eligible. In most cases, your federal student loan debt must be greater than your yearly discretionary income or comprise a sizable amount of your annual household income.