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If the monthly payment on your federal student loans is straining your finances to the breaking point, an income-driven repayment (IDR) plan might provide relief by reducing your monthly payment.
IDR plans help millions of borrowers cope with their monthly student loan payments, but it’s important to understand how income-driven repayment works and the specifics of each plan.
There are four main IDR plans: Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR). Here’s everything you need to know about each.
- What is income-driven repayment (IDR)?
- Qualifying for income-driven repayment
- Types of income-driven repayment
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Contingent Repayment (ICR)
- How to apply for income-driven repayment
- What to do if you don’t qualify for an income-driven repayment plan
- The best income-driven repayment plan
What is income-driven repayment?
Now available to the vast majority of federal student loan borrowers, income-driven repayment plans are becoming the most popular repayment option for federal student loan borrowers.
In general, IDR plans can be a good choice if:
- You’re stretching to make monthly payments on the standard 10-year repayment plan
- You’re planning a career in government or public service and hope to qualify for Public Service Loan Forgiveness
Pros of IDR plans
As their popularity would suggest, income-driven repayment plans can be a great help if your finances are stretched, offering several potential advantages over other plans:
- Lower monthly payments: Because your minimum monthly payment is just a fraction of your discretionary income — 10%, 15%, or 20%, depending on the plan — enrolling in an IDR plan can lower your monthly payment and free up money for living expenses.
- Help avoid default: By lowering your monthly payment, IDR plans can also help you avoid defaulting or getting behind on your student loan payments.
- Flexible monthly payments: IDR plans offer flexible monthly payments that adjust with your income. If you have no discretionary income, your monthly student loan payment is zero.
- On track for forgiveness: In addition to making monthly student payments more affordable, IDR plans can put you on track for loan forgiveness in 20 or 25 years.
- Qualify for PSLF: If you’re employed by the government or a qualified non-profit, you can qualify for Public Service Loan Forgiveness (PSLF) in as little as 10 years, by making 120 qualifying monthly payments in an IDR plan.
Cons of IDR plans
The main problem with income-driven repayment plans is that they’ll often stretch your payments out over a much longer period of time than the standard 10 years.
- Pay more in interest: If you take longer than 10 years to pay off your loans and don’t qualify for loan forgiveness, you could end up paying thousands of dollars in additional interest charges.
- Pay more in taxes: If you qualify for loan forgiveness, you might have to pay taxes on any amount that’s forgiven if you have a remaining balance at the end of your repayment period.
- Must reapply every year: Joining — and staying enrolled in — an IDR plan requires recertifying your income and family size once a year (since the plan is based on what you earn). In practice, what that means is once you’re enrolled in an IDR plan, you have to reapply every year. If you fail to “recertify” your income and family size each year, your monthly payments might increase dramatically.
- Unpaid interest liability: If you quit your IDR plan, fail to recertify your income, or are no longer eligible to make income-based repayments, you may be on the hook for unpaid interest, which can be added back to your loan principal.
- Private loans aren’t eligible: For federal IDR plans, only federal loans are eligible and most private lenders don’t offer income-based repayment. If you have private loans, and still want to lower your monthly payment, refinancing into a loan with a longer repayment term could be an option. However, keep in mind that some lenders want to see that you’re off the IDR plan for a few months before refinancing into a private loan.
Qualifying for income-driven repayment
Most types of federal student loans qualify for repayment in an income-driven repayment plan or can be converted into eligible loans. Parents who have taken out PLUS loans, for example, must convert them into federal Direct Consolidation Loan in order to qualify for the Income Contingent Repayment (ICR) plan.
Even if your loans are eligible, some IDR plans — IBR and PAYE — also require that borrowers demonstrate a partial financial hardship, which is determined by income, family size, and loan amount. Any borrower with eligible loans has the option to enroll in REPAYE or ICR.
Types of income-driven repayment plans
There are four main income-driven repayment plans for federal student loans:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Contingent Repayment (ICR)
Because IBR treats borrowers who took out their first loan after July 1, 2014, more generously than those with older loans, it’s effectively two different plans: IBR and “New IBR.”
Here are the basic features of each plan:
| Monthly Payment | Loan Forgiveness | Who Qualifies | |
| IBR | 15% of discretionary income — never more than 10-year plan | 25 years | Borrowers with partial financial hardship (no Parent PLUS Loans) |
| New IBR | 10% of discretionary income — never more than 10-year plan | 20 years | Recent borrowers with partial financial hardship who took out first loan after July 1, 2014 (no Parent PLUS Loans) |
| PAYE | 10% of discretionary income — never more than 10-year plan | 20 years | Relatively new borrowers who meet three requirements: 1) Have a partial financial hardship 2) Took out federal loans after Sept. 30, 2007, and were not paying back older loans at the time 3) Took out a new loan or consolidated existing loans after Sept. 30, 2011 (no Parent PLUS Loans) |
| REPAYE | 10% of discretionary income (no cap) | 20 years (25 years if repaying grad school debt) | Any borrower (no Parent PLUS Loans) |
| ICR | 20% of discretionary income (or income-adjusted payment on 12-year plan) | 25 years | Any borrower (Parent PLUS Loans must be consolidated) |
Income-Based Repayment (IBR)
Best for: Recent borrowers who can’t afford the standard 10-year repayment plan, don’t qualify for PAYE, and don’t expect to qualify for loan forgiveness under REPAYE or for borrowers who have older FFEL loans and don’t want to fold them into a federal direct consolidation loan
Available to borrowers since 2009, IBR remains the most popular IDR plan. But there are really two IBR plans — the original version signed into law by George W. Bush in 2007, and a more generous version for more recent borrowers unveiled by the Obama administration (“new IBR”).
You’re only eligible for new IBR if you took your first loan out on or after July 1, 2014. But if you qualify, your monthly payment will be 10% of your discretionary income, instead of 15%. Also, you can qualify for loan forgiveness in new IBR in just 20 years instead of 25 like the original IBR.
Both the original and new IBR plans require that you demonstrate a partial financial hardship. In most cases, you’ll qualify if your federal student loan debt exceeds your annual discretionary income. It’s also worth noting that IBR is the only IDR plan that allows you to pay back older Federal Family Education Loans (FFEL) without converting them into a federal direct consolidation loan.
Eligible loans:
- Federal direct loans (subsidized and unsubsidized)
- Direct PLUS loans to graduate and professional students (Parent PLUS Loans not eligible)
- Federal Family Education Loan (FFEL) program loans (FFEL direct loans and Grad PLUS loans — FFEL Parent PLUS Loans not eligible)
- FFEL or federal direct consolidation loan used to repay Stafford, FFEL, Perkins or Grad PLUS loans (consolidation loans used to repay Parent PLUS Loans not eligible)
Payment terms: For new borrowers, monthly payments are equal to 10% of your discretionary income, with any unpaid balance after 20 years of payments forgiven. If you have older loans, your monthly payments are 15% of discretionary income, and it takes 25 years to qualify for loan forgiveness (borrowers may qualify for Public Service Loan Forgiveness in any IDR plan after 10 years of payments).
Pros:
- Lowest monthly payment and shortest path to loan forgiveness for new borrowers.
- Cap on monthly payments: In IBR, your minimum monthly payment is never more than what you would have paid under the standard 10-year repayment plan.
- Partial unpaid interest subsidy: If your monthly payments are too small to cover the interest you owe, the government will write off half of any unpaid interest on subsidized loans, but only for the first three years you’re in the plan.
Cons:
- Eligibility requirements: Must demonstrate partial financial hardship.
- Higher monthly payments and longer path to loan forgiveness for borrowers with older loans taken out before July 1, 2014.
- No cap on unpaid interest: If you leave or are kicked out of IBR because you fail to recertify your income, there is no cap on the amount of unpaid interest that can be added back to your loan principal.
Pay As You Earn (PAYE)
Best for: Borrowers who expect to qualify for loan forgiveness
For many student loan borrowers, PAYE (and the nearly identical new IBR) will be the most generous IDR plan — if they can qualify. PAYE and new IBR provide the lowest monthly payments (10% of discretionary income) and the shortest path to loan forgiveness (20 years, or 10 years for borrowers qualifying for Public Service Loan Forgiveness).
But qualifying for PAYE and IBR can be tricky — you must be able to demonstrate a partial financial hardship. To qualify for PAYE, you’ll also have to be a relatively new borrower. You have to have federal student loans taken out after Sept. 30, 2011. You can qualify for PAYE if you have loans taken out as far back as Oct. 1, 2007, as long as weren’t already paying back other student loans when you received them.
Eligible loans:
- Federal direct loans (subsidized and unsubsidized)
- Direct PLUS loans to graduate and professional students (Parent PLUS Loans not eligible)
- Federal direct consolidation loan used to repay Stafford, FFEL, Perkins or Grad PLUS loans (consolidation loans used to repay Parent PLUS Loans not eligible)
Payment terms: Monthly payments equal to 10% of discretionary income, with any unpaid balance after 20 years of payments forgiven
Pros:
- Cap on monthly payments: In PAYE and IBR, your minimum monthly payment is never more than what you would have paid if you’d signed up for the standard 10-year repayment plan in the first place.
- Partial unpaid interest subsidy: If your monthly payments are too small to cover the interest you owe, the government will write off half of any unpaid interest on subsidized loans, but only for the first three years you’re in the plan.
- Cap on unpaid interest: If you no longer qualify to make payments under the PAYE plan because your income has grown, the amount of unpaid interest that can be added back to your loan is capped at 10% of your original loan balance.
Cons:
- Eligibility requirements: Must demonstrate partial financial hardship and have recent loans taken out after Sept. 30, 2011.
Revised Pay As You Earn (REPAYE)
Best for: Borrowers who don’t qualify for PAYE or new IBR
Just about anyone with federal student loans can enroll in REPAYE, which has helped make it the fastest growing IDR plan. Although it’s only been available since December 2015, more than 2.3 million borrowers are paying back $129 billion in loans in REPAYE.
At first glance, REPAYE looks a lot like PAYE and New IBR. Your monthly payments are 10% of your discretionary income, and most borrowers can qualify for loan forgiveness after 20 years of payments.
But there are a couple of important differences to look out for. If you’re repaying any grad school debt in REPAYE, it takes 25 years to qualify for loan forgiveness. And unlike IBR and PAYE, your monthly payments can end up exceeding what you would have paid in the standard 10-year repayment plan if your earnings grow enough over time. If you’re married, your monthly payment may be higher than in other IDR plans.
Eligible loans:
- Federal direct loans (subsidized and unsubsidized)
- Direct PLUS loans to graduate and professional students (Parent PLUS Loans not eligible)
- Federal direct consolidation loan used to repay Stafford, FFEL, Perkins or Grad PLUS loans (consolidation loans used to repay Parent PLUS Loans not eligible)
Payment terms: Monthly payments equal to 10% of discretionary income, with any unpaid balance after 20 years of payments forgiven (25 years for grad students).
Pros:
- Inclusive eligibility requirements: You don’t have to demonstrate a partial financial hardship to enroll in REPAYE, and it doesn’t matter when you took out your loans.
- Generous unpaid interest subsidy: If your monthly payments aren’t even covering the interest you owe, the government writes off all of the unpaid interest on your subsidized loans for the first three years you’re in the plan and half of the unpaid interest after that. If you have unsubsidized loans, REPAYE takes care of half of the unpaid interest during all periods.
Cons:
- Longer road to loan forgiveness for grad students (25 years).
- No cap on monthly payment: If your earnings grow, your monthly payment could exceed what you would have paid in the standard 10-year repayment plan.
- No cap on unpaid interest: If you leave or are kicked out of REPAYE because you fail to recertify your income, there is no cap on the amount of unpaid interest that can be added back to your loan principal. Fortunately, the government writes off much of your unpaid interest each year your in the plan.
- Less generous to married couples: Both you and your spouse’s income will typically be used to calculate your monthly payment, regardless of whether you file taxes separately or jointly.
Income-Contingent Repayment (ICR)
Best for: Borrowers with Parent PLUS Loans
ICR was rolled out in 1994 and is the oldest, least generous, and least popular of all IDR plans. That’s because your monthly payments in ICR can be up to 20% of your discretionary income and it takes 25 years to qualify for loan forgiveness (or 10 years for borrowers who qualify for Public Service Loan Forgiveness).
What ICR does have going for it is that it’s the only IDR plan that accepts borrowers with Parent PLUS Loans — although those loans must first be converted into federal direct consolidation loans.
Be careful when combining any of your federal loans into a federal Direct Consolidation Loan — you can lose credit for payments you’ve already made toward Public Service Loan Forgiveness or forgiveness in an IDR plan. Also, if you combine your own loans with Parent PLUS Loans you took out on behalf of your children, the new loan won’t be eligible for any IDR plan other than ICR.
Eligible loans:
- Federal direct loans (subsidized and unsubsidized)
- Direct PLUS loans to graduate and professional students
- Parent PLUS Loans (after consolidation)
- Federal direct consolidation loan used to repay Stafford, FFEL, Perkins, Grad PLUS, and Parent PLUS Loans
Payment terms: 20% of discretionary income, or income-adjusted payment based on a 12-year plan if less.
Pros:
- More affordable monthly payment: For some borrowers with large Parent PLUS Loan balances, the payment will be more affordable.
- Inclusive eligibility requirements: You don’t have to demonstrate a partial financial hardship to enroll in ICR, and it doesn’t matter when you took out your loans.
Cons:
- Higher monthly payment and longer path to loan forgiveness for most borrowers than in other IDR plans.
- No unpaid interest subsidy: If your monthly payments aren’t enough to cover the interest you owe, all of your unpaid interest may be added back to your loan principal if you quit your IDR plan or fail to recertify your income.
How to apply for income-driven repayment
To apply for an IDR plan, you submit an application called the Income-Driven Repayment Plan Request. You can do it online via StudentLoans.gov (you’ll need to use your Federal Student Aid ID to sign in) or on paper, which your loan servicer can supply.
If you apply online, you can choose to have the IRS Data Retrieval Tool in the application transfer your income information directly from your federal income tax return. This ensures you submit accurate facts and your application is processed as quickly as possible. If you submit on paper, you’ll need to provide a copy of your most recent federal tax return.
You’ll have the option of selecting one of the four IDR plans by name or letting your loan servicer figure out which plans you qualify for and then put you in the plan with the lowest monthly payments.
Before delegating the responsibility of choosing an IDR plan to your loan servicer, it’s a good idea to at least familiarize yourself with the available plans so you know what you’re getting into. The Department of Education’s repayment estimator can give you an idea of what your monthly payment and total repayment costs would be in each plan.
What to do if you don’t qualify for income-driven repayment
After researching IDR plans, you might find that you don’t qualify or that an IDR plan isn’t a good fit with your financial goals. If either is the case, you might be a good candidate for student loan refinancing.
If you’ve got private student loans that don’t qualify for an IDR plan, you might be able to lower your monthly payment by refinancing into a loan with a longer repayment term. If you’re also able to secure a lower interest rate, you might be able to mitigate some of the additional interest expenses borrowers often incur when stretching out their payments in an IDR plan.
If you’re comfortable with the monthly payment on your private or federal student loans and want to pay them down faster, refinancing into a loan with a shorter repayment term can help you get the biggest interest rate reduction, and achieve the greatest savings. That’s because all other things being equal, the shorter the repayment term, the lower the interest rate offered by most lenders.
The student loan refinancing companies in the table below are Credible’s approved partner lenders. Because they compete for your business through Credible, you can request rates from all of them by filling out a single form. Then, you can compare your available options side-by-side. Requesting rates is free, doesn’t affect your credit score, and your personal information is not shared with our partner lenders unless you see an option you like.
| Lender | Variable rates from (APR) | Fixed rates from (APR) | Check rates from multiple lenders in 2 min |
|---|---|---|---|
 | N/A | 4.54%+ | Get Rates Advantage review |
 | 2.39%+ | 3.50%+ | Get Rates Brazos review |
 | 2.49%+¹ | 3.20%+¹ | Get Rates Citizens Bank review |
 | 3.89%+2 | 4.89%+2 | Get Rates College Ave review |
 | 2.39%+3 | 3.19%+3 | Get Rates ELFI review |
 | 1.87%+4 | 2.92%+4 | Get Rates INvestEd review |
 | 4.65%+ | 3.75%+ | Get Rates MEFA review |
 | 2.18%+ | 3.23%+ | Get Rates Penfed review |
 | N/A | 3.49%+ | Get Rates RISLA review |
 | 2.99%+5 | 3.20%+5 | Get Rates SoFi review |
| Compare personalized rates from multiple lenders without affecting your credit score. 100% free! |
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All APRs reflect autopay and loyalty discounts where available | 1Citizens Bank Disclosures | 2College Ave Disclosures | 3 ELFI Disclosures | 4INvestEd Disclosures | 5SoFi Disclosures |
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Citizens Bank Education Refinance Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate ("LIBOR") published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of July 1, 2020, the one-month LIBOR rate is 0.18%. Variable interest rates range from 2.49%-8.38% (2.49%-8.38% APR) and will fluctuate over the term of the borrower's loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 3.20%-8.63% (3.20%-8.63% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan. |
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The best income-driven repayment plan
Choosing which IDR plan is right for you can be difficult. The Department of Education’s Repayment Estimator is a good tool for evaluating your options. Enter your loans and income information, and the tool will show you what your monthly payments, total repayment costs, and potential loan forgiveness would be under any plan. Just be aware of the repayment estimator’s shortcomings, which include the assumptions it makes about how rapidly your income will grow.
All in all, though, the repayment plan that’s best for you will depend on your unique situation — including your income, total debt, and the interest rate you’re paying on your loans.
