Lower your monthly loan payments with an Income-Driven Repayment (IDR) Plan

Annabell Satterfield

What is it?

There are five main income-driven repayment plans out there. Not everyone qualifies for all of them, and there are pros and cons for each. Briefly, they are IBR 2009, IBR 2014, REPAYE, PAYE, and ICR. If you have Direct Loans, you can choose between an eligible IBR plan, as well as the other three. If you have FFEL Program loans, you can use ICR, or consolidate to a Direct Loan to gain access to the others. If you have a Parent PLUS loan, you are only eligible for ICR. None of these income-driven repayment programs are available for private student loans. 

 

The plans differ in terms of who qualifies, how much you have to pay, the type of loans that are eligible, and the length of repayment:

Income-Based Repayment (IBR) 2014

What it does: it caps your monthly payments at 10% of discretionary income and forgives any outstanding balance after 20 years of qualifying payments.

The following loans made to students (not parents):

  • – Direct Subsidized and Unsubsidized Loans
  • – Direct PLUS loans made to students 
  • – Direct Consolidation Loans 

…taken out AFTER July 1, 2014 by a borrower who did not have an outstanding balance on a Direct or FFEL loan at the time of borrowing

Income-Based Repayment (IBR) 2009

What it does: If you’re able to annually certify financial hardship, it caps your monthly payments at the lesser of (1) 15% of discretionary income or (2) what your payment would be under a 10-year, fixed plan, and it forgives any outstanding balance after 25 years. The government also subsidizes the interest that would normally have accumulated if your payments are too low to cover your interest in the first three years.

The following loans made to students (not parents):

  • – Direct Subsidized and Unsubsidized Loans
  • – Direct Graduate PLUS loans made to students
  • – FFEL Consolidation Loans 
  • – Direct Consolidation Loans

 

…taken out BEFORE July 1, 2014

Income Contingent Repayment (ICR)

What it does: it caps your monthly payments at the lesser of: (1) 20% of your monthly discretionary income or (2) what your payment would be under a 12-year, fixed plan adjusted according to income. It forgives any outstanding balance after 25 years of qualifying payments. It also allows you to exclude your spouse’s income to calculate payments if you file your taxes separately, so this is a good choice for married grads. It’s also the only income-based repayment plan that parent PLUS borrowers can use.

  • – Direct Subsidized and Unsubsidized Loans
  • – Direct Consolidation Loans
  • – Direct PLUS loans (loans made to parents are eligible if they are consolidated first)
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  • The following, if they’re first consolidated into a Direct Consolidation Loan:
      •  
      • – Federal Stafford Subsidized and Unsubsidized Loans
      • – FFEL PLUS loans
      • – FFEL consolidation loans
      • – Federal Perkins loans

Pay as You Earn (PAYE)

What it does: If you’re able to certify financial hardship yearly, it caps your monthly payments at the lesser of (1) 10% of your discretionary income or (2) what your payment would be under the standard, fixed 10-year payment plan. It also forgives any outstanding balance after 20 years of qualifying payments. The government also subsidizes the interest that would normally have accumulated if your payments are too low to cover your interest in the first three years. It also allows you to exclude your spouse’s income to calculate payments if you file your taxes separately, so this is also a good choice for married grads.

The following loans made to students (not parents):

  • – Direct Subsidized and Unsubsidized Loans
  • – Direct Consolidation Loans 
  • – FFEL loans (if you consolidate to a Direct Consolidation loan first)
  •  

You must also meet these requirements:

  • – You must have received a Direct Loan on or after Oct. 1, 2007, and had no outstanding federal loans at that time.
  • – You must have received a Direct Loan disbursement on or after Oct. 1, 2011.

Revised Pay As You Earn (REPAYE)

What it does: If you’re willing to certify your income and family size yearly, it will set your monthly payment at 10% of your discretionary income and forgive any outstanding balance after 20 years (25 for graduate/professional borrowers). This could be a problem if your income rises significantly in your latter years of repayment- there is no ceiling.  You do not have to prove financial hardship, but your (and your spouse’s) income is used to calculate monthly payments.  

For subsidized loans, the government subsidizes the interest that would normally have accumulated if your payments are too low to cover your interest in the first three years, and it subsidizes half of it after that. Interestingly, the government subsidizes half of your interest for the length of your repayment term on unsubsidized loans under REPAYE.

The following loans made to students (not parents):

  • – Direct Subsidized and Unsubsidized Loans
  • – Direct Consolidation Loans 
  • – Stafford loans
  • – Graduate PLUS loans
  • – FFEL loans (if you consolidate to a Direct Consolidation loan first)

I want to apply for an Income-Driven Repayment Plan. What’s next?

You can apply online at studentloans.gov or by sending your servicer this form. Your servicer is the company the government has contracted to manage the repayment of your federal student loans. The main ones are FedLoan Servicing, Great Lakes, Navient, or Nelnet.

Before you do that, you should take the time to calculate what your new monthly payment would be, and what the total cost of the repayment of your loan will be if you only paid the minimum. Think about what you expect your income (or you and your spouse’s income) will be in the near future, especially if you’ll be on a plan with an uncapped payment amount, such as REPAYE. 

Also, be aware that, under some plans, your monthly payment could end up being lower than your interest- in which case your total cost could go up as well as your principal (the total debt you owe). There may also be unexpected tax implications to getting your loans forgiven.  

How do I calculate my monthly payments under different repayment plans? Use our calculator!

Our unique Chipper calculator will help you determine which repayment plans you qualify for and estimate your expected monthly payment, total cost, and years of repayment.

While much-needed wiggle room in your monthly budget will keep you out of default and give you options, do remember that you will save money in the long run if you pay down your debt with a plan.  Reach out to us at support+calculator@chipper.app if you have any questions.