If federal student loan payments are high compared to a borrower’s income, the borrower may qualify to repay his or her loans under an income-driven repayment plan.
An income-driven repayment plan sets the borrowers monthly student loan payment at an affordable amount based on the borrower’s income and family size. The Unites States Department of Education offers four income-driven repayment plans:
- Pay as You Earn Repayment Plan (PAYE Plan)
- Revised Pay as You Earn Repayment Plan (REPAYE Plan)
- Income-Based Repayment Plan (IBR Plan)
- Income-Contingent Repayment Plan (ICR Plan)
Most federal student loans are eligible for at least one income-driven repayment plan. If the borrower’s income is low enough, the payment could be as low as $0 per month.
What Federal Student Loans Are Eligible for Income-Driven Repayment Plans?
| Loan Type | REPAYE Plan | PAYE Plan | IBR Plan | ICR Plan |
| Direct Subsidized Loans | Eligible | Eligible | Eligible | Eligible |
| Direct Unsubsidized Loans | Eligible | Eligible | Eligible | Eligible |
| Direct PLUS Loans made to graduate or professional students | Eligible | Eligible | Eligible | Eligible |
| Direct PLUS Loans made to parents | Not eligible | Not eligible | Not eligible | Eligible if consolidated* |
| Direct Consolidation Loans that did not repay any PLUS loans made to parents | Eligible | Eligible | Eligible | Eligible |
| Direct Consolidation Loans that repaid PLUS loans made to parents | Not eligible | Not eligible | Not eligible | Eligible |
| Subsidized Federal Stafford Loans (from the FFEL Program) | Eligible if consolidated* | Eligible if consolidated* | Eligible | Eligible if consolidated* |
| Unsubsidized Federal Stafford Loans (from the FFEL Program) | Eligible if consolidated* | Eligible if consolidated* | Eligible | Eligible if consolidated* |
| FFEL PLUS Loans made to graduate or professional students | Eligible if consolidated* | Eligible if consolidated* | Eligible | Eligible if consolidated* |
| FFEL PLUS Loans made to parents | Not eligible | Not eligible | Not eligible | Eligible if consolidated* |
| FFEL Consolidation Loans that did not repay any PLUS loans made to parents | Eligible if consolidated* | Eligible if consolidated* | Eligible | Eligible if consolidated* |
| FFEL Consolidation Loans that repaid PLUS loans made to parents | Not eligible | Not eligible | Not eligible | Eligible if consolidated* |
| Federal Perkins Loans | Not eligible | Not eligible | Not eligible | Eligible if consolidated* |
*“eligible if consolidated,” means that if the borrower consolidates that loan type into a Direct Consolidation Loan, the borrower can then repay the consolidation loan under the income-driven plan. However, if the borrower consolidates a FFEL Program Loan or Federal Perkins Loan into a Direct Consolidation Loan, the borrower may then be able to repay the Direct Consolidation Loan under the REPAYE, PAYE, and ICR Plan (depending on the type of loan consolidated).
Only federal student loans can be repaid under the income-driven plans. Private student loans are not eligible.
How are Monthly Payments Payment Amounts Calculated?
The monthly payment amount under an income-driven repayment plan is based upon a percentage of the borrower’s discretionary income. The percentage differs depending on the plan. Depending on the borrower’s income and family size, the borrower may have no monthly payment at all.
How Long is the Repayment Plan?
Income-driven repayment plans have different repayment periods. However, all four plans, forgive any remaining loan balance if the federal student loans are not fully repaid at the end of the repayment period. For any income-driven repayment plan, periods of economic hardship deferment, periods of repayment under certain other repayment plans, and periods when the borrower’s required payment is zero will count toward the total repayment period.
Whether the borrower will have a balance left to be forgiven at the end of the repayment period depends on a number of factors, such as how quickly the borrower’s income rises and how large the borrower’s income is relative to his or her debt. Because of these factors, a borrower may fully repay the loan before the end of the repayment period.
Will Payment Remain the Same Amount for the Life of the Income-Driven Repayment Plan?
No, under each of the IDR plans, the borrower is required “recertify” his or her income and family size each year. This means that the borrower must provide the loan servicer with updated income and family size information so that the loan servicer can recalculate the IDR payment amount. The borrower must do this even if there has been no change in income or family size.
Although recertification is only required once each year, if the borrower income or family size changes significantly before the annual certification date (for example, due to loss of employment), the borrower can submit updated information and ask the loan servicer to recalculate the payment amount at any time. The borrower is not required to report changes in his or her financial circumstances before the annual recertification date. The borrower can wait until the recertification date to report an increase income.
Under the REPAYE Plan, if the borrower does not recertify by the annual deadline, he or she will be kicked off the REPAYE Plan and placed on an alternative repayment plan. Under this alternative repayment plan, the borrower’s monthly payment is no longer based on income. Instead, the payment will be the amount necessary to repay your loan in full by the earlier of (a) 10 years from the date the borrower began repaying under the alternative repayment plan, or (b) the ending date of the borrower’s 20- or 25-year REPAYE Plan repayment period.
Under PAYE Plan, IBR Plan, or ICR, if the borrower does not recertify by the annual deadline, the borrower will remain on the same income-driven repayment plan, but the monthly payment will no longer be based on income. Instead, the required monthly payment amount will be the amount the borrower would pay under a Standard Repayment Plan with a 10-year repayment period, based on the loan amount the borrower owed when he or she initially entered the income-driven repayment plan.
Also, if the borrower does not recertify by the annual deadline under the REPAYE, PAYE, and IBR plans, any unpaid interest will be capitalized (added to the principal balance of the loans). This will increase the total cost of the loans over time, because the borrower will then pay interest on the increased loan’s principal balance.
Under all of the IDR plans, if the borrower does not recertify his or her family size each year, the borrower will remain on the same repayment plan, but the loan servicer will assume that the borrower has a family size of one. If the borrower’s actual family size is larger, but the loan servicer assumes a family size of one because the borrower did not recertify his or her family size, this could result in an increased monthly payment amount or (for the PAYE and IBR plans) loss of eligibility to make payments based on income.