Income-Driven Repayment Plans Explained: IBR, PAYE, REPAYE, ICR Guide

What Are Income-Driven Repayment Plans?

Income-Driven Repayment (IDR) plans cap your monthly federal student loan payment at a percentage of your discretionary income. These plans are designed to make student loan payments more affordable for borrowers with high debt relative to their income.

All IDR plans offer loan forgiveness after 20-25 years of qualifying payments. They also recalculate your payment annually based on your updated income and family size, ensuring payments remain affordable as your circumstances change.

The Four Income-Driven Repayment Plans

1. Income-Based Repayment (IBR)

Monthly Payment: 10% of discretionary income (new borrowers after July 1, 2014) or 15% (borrowers before that date)

Forgiveness Timeline: 20 years for new borrowers, 25 years for earlier borrowers

Eligibility: Must have "partial financial hardship" - when your calculated IDR payment would be less than your 10-year standard payment

IBR Example

Scenario: Single borrower with $50,000 in loans, earning $40,000/year

• Discretionary income: $40,000 - $21,870 (150% poverty line) = $18,130
• Monthly payment: ($18,130 × 10%) ÷ 12 = $151/month
• Compare to standard 10-year: $555/month
• Monthly savings: $404

2. Pay As You Earn (PAYE)

Monthly Payment: 10% of discretionary income (never more than standard 10-year plan amount)

Forgiveness Timeline: 20 years

Eligibility: Must be a "new borrower" (first loan disbursed on or after October 1, 2007, and received Direct Loan disbursement on or after October 1, 2011)

PAYE Benefits

✓ Payment cap: Never pay more than 10-year standard amount, even if income increases significantly
✓ Interest subsidy: Government pays 100% of unpaid interest for first 3 years on subsidized loans
✓ Fastest forgiveness: Only 20 years of payments required
✓ Spouse's income: Can file taxes separately to exclude spouse's income from calculation

3. Revised Pay As You Earn (REPAYE) / SAVE Plan

Monthly Payment: 10% of discretionary income for undergraduate loans, 5% for graduate loans (or weighted average if both)

Forgiveness Timeline: 20 years for undergraduate borrowers, 25 years if any graduate school debt

Eligibility: No eligibility restrictions - available to all Direct Loan borrowers

SAVE Plan 2024 Updates

The SAVE plan (Saving on a Valuable Education) replaced REPAYE in 2023 with several improvements:

✓ Higher income protection: 225% of poverty line vs 150% (protects more income)
✓ Undergraduate rate: Reduced to 5% of discretionary income for undergrad loans only
✓ Interest benefit: Government covers 100% of remaining interest each month (no negative amortization)
✓ Spousal income: Like PAYE, can file separately to exclude spouse's income
✓ Early forgiveness: Borrowers with original balance under $12,000 can get forgiveness after 10 years

4. Income-Contingent Repayment (ICR)

Monthly Payment: Lesser of 20% of discretionary income OR what you'd pay on fixed 12-year plan adjusted by income

Forgiveness Timeline: 25 years

Eligibility: Available to all Direct Loan borrowers, including Parent PLUS borrowers who consolidate

When to Choose ICR

ICR is generally the least favorable IDR option, but it's the only choice if:

• You have Parent PLUS Loans (consolidate into Direct Consolidation Loan first)
• You don't qualify for other IDR plans
• You're pursuing PSLF and need an IDR plan immediately

Comparing All Four IDR Plans

Feature	IBR	PAYE	REPAYE/SAVE	ICR
Payment %	10-15%	10%	5-10%	20%
Forgiveness	20-25 years	20 years	20-25 years	25 years
Payment Cap	Yes	Yes	No	No
Interest Subsidy	3 years (50%)	3 years (100%)	Ongoing (100%)	None
Parent PLUS	No	No	No	Yes*

*After consolidation

How to Choose the Right IDR Plan

Choose SAVE/REPAYE if:

You have high debt and low-to-moderate income
You're worried about interest capitalization
You have undergraduate-only debt (5% payment rate)
You're pursuing Public Service Loan Forgiveness
You don't qualify for PAYE

Choose PAYE if:

You qualify (new borrower after 2007)
Your income is expected to increase significantly
You're married and want to file taxes separately
You want the payment cap protection

Choose IBR if:

You don't qualify for PAYE or SAVE
You borrowed before July 2014 and prefer 15% payment with payment cap
You have both Direct and FFEL loans

Choose ICR if:

You have Parent PLUS Loans (after consolidating)
You're ineligible for all other plans

Application Process

To enroll in an IDR plan:

Gather Documents: Recent tax returns or pay stubs, family size information
Complete IDR Application: Use the online form at StudentAid.gov or submit paper form to your servicer
Provide Income Documentation: IRS Data Retrieval Tool or upload tax documents
Annual Recertification: Update income and family size every 12 months

Important Deadlines

Miss your recertification deadline? You'll be placed back on the standard 10-year plan with unpaid interest capitalized. Set reminders 60-90 days before your annual recertification date to avoid this costly mistake.

Tax Implications of IDR Forgiveness

Important Update: The American Rescue Plan Act of 2021 made student loan forgiveness tax-free through 2025. Congress may extend this provision.

After 2025 (unless extended), forgiven balances under IDR plans will be considered taxable income. For example, if $50,000 is forgiven and you're in the 22% tax bracket, you could owe $11,000 in federal taxes that year. Plan ahead by:

Setting aside monthly savings for potential tax bill
Consulting with a tax professional as forgiveness approaches
Considering whether PSLF (tax-free forgiveness) might be an option

IDR and Public Service Loan Forgiveness (PSLF)

IDR plans are required for PSLF eligibility. Any of the four plans qualify, but SAVE/REPAYE typically offers the lowest payments. After 120 qualifying payments (10 years) while working for a qualifying employer, your remaining balance is forgiven tax-free - much better than waiting 20-25 years under standard IDR forgiveness.

Common Mistakes to Avoid

❌ Missing Recertification Deadlines

This is the #1 mistake. Set calendar reminders and recertify early.

❌ Not Updating Family Size

Marriage, divorce, or children change your payment. Update your servicer immediately.

❌ Refinancing Federal Loans

Private refinancing eliminates IDR and PSLF eligibility forever. Never refinance if you need these protections.

❌ Not Tracking Qualifying Payments

Keep records of all payments. Use the PSLF Help Tool annually to verify counts.

Frequently Asked Questions

Can I switch between IDR plans?

Yes, you can switch IDR plans at any time (usually during annual recertification). Previously made payments count toward forgiveness under any IDR plan.

What if my payment is $0?

$0 payments count as qualifying payments toward forgiveness and PSLF. You must still recertify annually to maintain this status.

How is discretionary income calculated?

Discretionary income = Your AGI minus 150% (or 225% for SAVE) of the federal poverty guideline for your family size and state.

Does my spouse's income count?

It depends on the plan and tax filing status. PAYE and SAVE allow married borrowers to file separately to exclude spouse's income. IBR also allows this. REPAYE always includes spouse's income regardless of filing status.

Take Action

Use our Repayment Simulator to compare how different IDR plans would affect your monthly payment and total repayment amount. Understanding your options is the first step to making the best choice for your financial future.