Income-Driven Student Loan Repayment Plans

As discussed in a previous blog post, federal student loans are eligible for a number of income-driven repayment plans. These plans can lower initial payments, ease the burden of interest, and even forgive all outstanding debt after a certain period of time.

The four income-driven plans that most federal student loans qualify for are the ICR, IBR, PAYE, and REPAYE plans. These plans set a monthly income-based payment amount, which is unaffected by the balance of the loan. After a certain number of years, called the Repayment Period, any remaining loan balance is forgiven. At that point, the forgiven balance is taxed as income.

To learn more about each income-based repayment plan, click on their name below.

Income-Contingent Repayment Plan (ICR)

This is the easiest income-driven repayment plan to qualify for, but often provides the least benefit. In this plan, the payment amount is set to the lesser of 20% of discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted for income. Any borrower with eligible federal student loans may make payments under this plan.
Repayment Period: 25 years

Income-Based Repayment Plan (IBR)


To qualify for the IBR plan, the payment you would be required to make must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period. If the payment is more than this amount, you won’t benefit from using an income-based repayment plan. The payment amount is set to 10% of discretionary income if you are a new borrower on or after July 1, 2014, or 15% otherwise.* This monthly payment will never be more than the 10-year Standard Plan amount.
Repayment Period: 20 years if you are a new borrower on or after July 1, 2014, otherwise 25 years
*For the IBR plan, you are a new borrower if you had no outstanding Direct or FEEL Loans when you received a Direct Loan on or after July 1, 2014.

Pay As You Earn Repayment Plan (PAYE)


To qualify for this plan you must meet the same eligibility requirement as the IBR plan, must be a new borrower as of October 1, 2007, and must have received a disbursement of a Direct Loan on or after October 1, 2011. Payments are set to 10% of your discretionary income, and are capped by the 10-year Standard Repayment Amount.
Repayment Period: 20 years

Revised Pay As You Earn Repayment Plan (REPAYE)


The newest income-based repayment plan, REPAYE, is often the most beneficial. Any borrower with eligible federal student loans may make payments under this plan, and the payment amount is set to 10% of your discretionary income. This makes REPAYE a good option for those seeking loan forgiveness under the PSLF program.
Repayment Period: 20 years if all loans you are repaying were for undergraduate study, otherwise 25 years

To determine which repayment plan is best for you, or if you have any questions about a specific plan, contact your loan servicer.

To apply for an income-driven repayment plan, you must submit an Income-Driven Repayment Plan Request. This can be obtained from your loan servicer, or submitted online at StudentLoans.gov.

Public Service Loan Forgiveness Program (PSLF)
A final consideration concerning repayment plans is the Public Service Loan Forgiveness Program. PSLF only applies to full-time employees of certain public service employers, but can forgive all remaining loan balance in as little as 10 years. Unlike the other income-driven repayment plans, any balance forgiven under PSLF is not taxed as income.

This program stipulates that any qualified employee who has made 120 qualified, monthly payments toward a qualifying loan will have the remining balance on their eligible loans forgiven tax-free. These 120 payments must be under one of the above plans, the 10-year Standard Repayment Plan, or a similar Direct Loan repayment plan with a monthly payment at least equal to those of the 10-year Standard Plan.

Public service sectors that qualify for this program include military, public schools, any federal, state, local, or tribal agency, law enforcement, public safety, and not-for-profit tax-exempt 501(c)(3) organizations. For a comprehensive list of government agencies and departments, visit USA.gov.

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