Does your monthly payment feel too high?
Income-Based or Income-Driven Repayment (IDR) plans can cap your required monthly payments in proportion to your discretionary income. They are a great option for student loan borrowers who can’t pay or struggle to pay their monthly payments. And they’re a way better alternative than deferment, forbearance, or default! You can also receive student loan forgiveness for any remaining balance after 20-25 years of repayment!
Important: If you are pursuing or interested in Public Service Loan Forgiveness, enrollment in an IDR plan is a requirement.
Income-Driven Repayment Plan Types
There are five different IDR Plans:
- Revised Pay As You Earn
- Pay As You Earn
- Income-Contingent
- Income-Based (2014)
- Income-Based (2009)
Revised Pay As You Earn (REPAYE) caps monthly payments at 10% of your discretionary income. After 20 or 25 years any remaining balance can be forgiven, (20 years for undergraduate study loans, and 25 years for graduate or professional study loans).
REPAYE is best if you:
- Aren’t married or your spouse doesn’t earn a significant amount of income (your spouse’s AGI is always included in the monthly payment calculation)
- Don’t have graduate loans
- Do not qualify for financial hardship
- Have high earning potential
Pay As You Earn (PAYE) caps payments at 10% of your discretionary income. After 20 years of repayment, any remaining balance can be forgiven.
PAYE is best if you:
- Are married with two incomes
- Have graduate loans
- Qualify for financial hardship now, but will potentially make enough income to need the 10% payment cap available under PAYE
- Have federal loans from before July 1st, 2014, in which case, PAYE and REPAYE are better options than IBR (Income-Based Repayment) 2009
Income-Contingent (ICR) has the most expensive payments among the income-driven plans, but it’s the only IDR plan Parent PLUS borrowers can enroll in. Monthly payments on Income-Contingent Repayment are either 20% of discretionary income or a fixed, 12-year payment. Any outstanding balance is forgiven after 25 years of qualifying repayment.
This plan is best if you:
- Have parent PLUS loans
- Want to reduce payments slightly
Income-Based (2014) caps payments at 10% of your discretionary income if you received your loans on or after July 1, 2014. You can receive forgiveness after 20 years of repayment.
IBR 2014 is best if you:
- Are facing financial hardship
- Took out federal loans after July 1, 2014 and did not have an outstanding balance on a Direct or FFEL loan at the time of borrowing, and were therefore considered a “new borrower”
Income-Based (2009) caps your monthly payments to 15% of your discretionary income if you received your loans before July 1, 2014. After 25 years of repayment, any remaining balance can be forgiven.
IBR 2009 is best if you:
- Have FFELP/FFEL student loans taken out before July 1, 2014
- Are facing financial hardship
How To Qualify For Income-Driven Repayment Plans
Loan Type
To qualify, you must have non-defaulted federal student loans as of October 1, 2007. Federal student loans include:
- Federal direct loans
- Direct Subsidized
- Direct Unsubsidized
- Direct PLUS (for students on or after Oct. 1, 2011)
- Direct Consolidation (based on an application that was received on or after Oct. 1, 2011)
- Federal Family Education Loan (FFEL loans)
Many borrowers need to consolidate their loans before they can qualify for IDR plans.
Loans that will need to be consolidated include:
- Subsidized Federal Stafford Loans (from the FFEL Program)
- Unsubsidized Federal Stafford Loans (from the FFEL Program)
- FFEL PLUS Loans made to graduate or professional students
- FFEL Consolidation Loans that did not repay any PLUS loans made to parents
- Federal Perkins Loans
Unfortunately, private loans are not eligible for income-driven repayment plans.
How are income based repayment plans calculated?
Income Level
You have to have enough debt relative to your income in order to qualify for a reduced monthly payment. This is calculated by finding the difference between your adjusted gross income (AGI) and 150% of the annual poverty line for a family of your size in your state.
What’s an example of a person that would qualify for income-driven repayment plans?
Monica graduated with $66K in student loan debt in 2013. She’s making $41K per year, lives in Missouri, and files her taxes as single. After she graduated, her repayment plan was automatically set to the standard repayment plan. (All student loan borrowers who receive federal student loans are enrolled in the Standard 10 year repayment plan). Her payments under this plan are $700 per month. This plan divides her loan balance by 120 payments (10 years) + interest for a total of $84K to be paid. It is not feasible for Monica to pay $700 per month with the income she’s making now and she should definitely consider an IDR plan.
Monica has a few IDR options:
- Income-Based (2009)
- Income-Contingent
- Pay As You Earn
- Revised Pay As You Earn
- Income-Based (2014)* not eligible
*Since Monica took out her loans before 2014, she does not qualify for the Income-Based (2014) repayment plan.
What’s another example of a person that would qualify for income-driven repayment plans?
Jose graduated in 2017 with over $24K in student loan debt. Him and his wife live in Texas and file taxes separately. Jose makes $51K a year. His payments enrolled in the standard repayment plan are around $300/month. While he can make payments, there isn’t much left over at the end of the month to save. Jose has a few IDR options:
- Income-Based (2014)
- Income-Contingent
- Pay As You Earn
- Revised Pay As You Earn
How can I apply for income-driven repayment?
To get started, sync your loans to discover which plans you’re eligible for. Compare your options side-by-side, once you choose a plan, you can go ahead and apply straight through our app.
Keep in mind, each year you will need to re-certify your income and family size. And, as mentioned, many student loan borrowers will need to consolidate their loans before applying. We can remind you when it’s time to annually re-certify required forms and help you consolidate your loans if needed.
