Your Guide to Income-Driven Repayment Plans for Federal Student Loans

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If you feel like your monthly student loan payments are too high, there’s a solution. The Department of Education offers income-driven repayment (IDR) plans to borrowers who qualify, and they can lower your payments to as little as 10% of your discretionary income.

But with four income-driven repayment plans available, choosing one can be a little overwhelming and confusing. We’re here to break it down for you so you can decide which student loan income driven repayment plan is best for you.

Your income-driven repayment plan options

1. Income-Based Repayment (IBR)
2. Pay As You Earn (PAYE)
3. Revised Pay As You Earn (REPAYE)
4. Income-Contingent Repayment (ICR)

Choosing an IDR plan and applying

1. Income-Based Repayment (IBR)

Income-Based Repayment (IBR) is an option regardless of when you received your loans. It’s similar to Pay As You Earn (PAYE) but offers more flexibility.

To qualify for IBR, your prospective payments must be lower than they’d be on the Standard Repayment Plan. You also must demonstrate financial need based on your income.

For example, if your student loan debt is higher than your annual discretionary income or is a significant portion of your annual income, you should qualify.

Eligible loans:

  • Direct loans (both subsidized and unsubsidized)
  • Direct PLUS loans made to graduate or professional students (loans made to parents are ineligible)
  • Direct consolidation loans that didn’t repay PLUS loans made to parents
  • Federal Stafford loans (both subsidized and unsubsidized)
  • Federal Family Education Loan (FFEL) PLUS loans made to graduate or professional students (loans made to parents are ineligible)
  • FFEL consolidation loans that didn’t repay PLUS loans made to parents

Eligible loans if consolidated:

  • Federal Perkins loans (which are no longer available to new borrowers)

Payment amount: Generally, 10% or 15% of your discretionary income, depending on the date of the first loan. Your discretionary income is calculated as the difference between your adjusted gross income and 150% of the federal poverty guideline for your family size and state.

Use our income-based repayment calculator to estimate your monthly payment.

The 10% amount is for new borrowers who didn’t borrow from the Direct Loan or FFEL programs until July 1, 2014, or later. The 15% amount is for everyone who began borrowing before that date.

Repayment period: 20 to 25 years. It’s a 20-year term for new borrowers on or after July 1, 2014, and 25 years for everyone else.

Pros:

  • It lowers your monthly payments.
  • Your loans are eligible for forgiveness if you carry a balance after the repayment period is complete.

Cons:

2. Pay As You Earn (PAYE)

Pay As You Earn (PAYE) is one of the newest income driven repayment plans to help borrowers manage their student loans. Unveiled in 2012, it’s similar to IBR but has stricter requirements.

To qualify for PAYE, you must demonstrate financial need. You must also be a fairly recent borrower. Specifically, you must be a new borrower as of Oct. 1, 2007, and have received a disbursement of a Direct Loan on or after Oct. 1, 2011.

To take advantage of PAYE, your prospective payments must be smaller than they’d be on the Standard Repayment Plan.

Eligible loans:

  • Direct loans (both subsidized and unsubsidized)
  • Direct PLUS loans made to graduate or professional students (loans made to parents are ineligible)
  • Direct consolidation loans that didn’t repay PLUS loans made to parents

Eligible loans if consolidated:

  • Federal Stafford loans (both subsidized and unsubsidized)
  • FFEL PLUS loans made to graduate or professional students (loans made to parents are ineligible)
  • FFEL consolidation loans that didn’t repay PLUS loans made to parents
  • Federal Perkins loans

Payment amount: Generally, 10% of your discretionary income, which is the difference between your annual income and 150% of the federal poverty guideline for your family size and state.

Use our PAYE calculator to estimate your monthly payment.

Repayment period: 20 years.

Pros:

  • It offers the lowest payment amount for all eligible borrowers.
  • The loans are eligible for loan forgiveness after 20 years.

Cons:

  • You must be a new borrower to qualify.
  • Forgiven loans might be considered taxable income.

3. Revised Pay As You Earn (REPAYE)

Revised Pay As You Earn (REPAYE), which became available in December 2015, is the newest income-driven repayment plan.

This plan is similar to PAYE, with a few key differences. The most notable difference is the fact that you’re eligible regardless of when you took out your first federal student loan. You also don’t have to demonstrate financial need.

Eligible loans:

  • Direct loans (both subsidized and unsubsidized)
  • Direct PLUS loans made to graduate or professional students (loans made to parents are ineligible)
  • Direct consolidation loans that didn’t repay PLUS loans made to parents

Eligible loans if consolidated:

  • Federal Stafford loans (both subsidized and unsubsidized)
  • FFEL PLUS loans made to graduate or professional students (loans made to parents are ineligible)
  • FFEL consolidation loans that didn’t repay PLUS loans made to parents
  • Federal Perkins loans

Payment amount: Generally, 10% of your discretionary income, which is the difference between your annual income and 150% of the federal poverty guideline for your family size and state.

Use our REPAYE calculator to estimate your monthly payment.

Repayment period: 20 or 25 years. It’s a 20-year term if all your loans under the plan were for undergraduate study. It’s a 25-year term if any of your loans were for graduate or professional study.

Pros:

  • It offers the lowest payment amount for all eligible borrowers.
  • Undergraduate loans are eligible for loan forgiveness after 20 years.

Cons:

  • Borrowers with graduate and professional student loans must make payments for 25 years before qualifying for forgiveness.
  • Your spouse’s income is included in the monthly payment calculation, regardless of tax filing status.
  • Forgiven loans might be considered taxable income.

4. Income-Contingent Repayment (ICR)

Income-Contingent Repayment (ICR), like REPAYE, doesn’t have an income eligibility requirement. It’s also the only income-driven repayment plan under which Parent PLUS loans qualify after you consolidate them into a Direct Loan.

So, if you don’t qualify for the other plans but want a lower payment, Income-Contingent Repayment is the best repayment plan for student loans for you.

Eligible loans:

  • Direct loans (both subsidized and unsubsidized)
  • Direct PLUS loans made to graduate or professional students
  • Direct consolidation loans

Eligible loans if consolidated:

  • Direct PLUS loans made to parents
  • Federal Stafford loans (both subsidized and unsubsidized)
  • FFEL PLUS loans
  • FFEL consolidation loans
  • Federal Perkins loans

Under ICR, your monthly payment is based on your income and family size and might even be higher than it would be on the Standard Repayment Plan.

Check out our ICR repayment estimator to calculate your monthly payments. It’ll help you determine whether ICR is a better option than the Standard Repayment Plan.

Payment amount: The lesser of the following options:

  • 20% of your discretionary income, which is the difference between your annual income and 150% of the federal poverty guideline for your family size and state
  • The payment amount on a 12-year fixed repayment plan, adjusted for income

Repayment period: 25 years.

Pros:

  • It’s easier to qualify since there’s not an income eligibility requirement.
  • You might be eligible for loan forgiveness once you complete your repayment plan.
  • Parents with Parent PLUS loans can qualify once they consolidate their loans into a Direct Loan.

Cons:

  • It has the highest potential payment amount of all income-driven plans.
  • Your payment might not be lower than it would be on the Standard Repayment plan.
  • Forgiven loans could be considered taxable income.

Choosing an IDR plan and applying

Choosing an income-driven repayment plan can help you manage your payments. But which one is the best student loan repayment plan for you?

For starters, determine whether you qualify based on your income and family size. You can do so by calculating your household income and comparing it with the federal poverty guideline.

If you do qualify, estimate your payments using our online calculator. Then, consider how much more you might pay in interest compared with the Standard Repayment Plan.

With a lower monthly payment and a longer repayment period, you’ll likely pay a lot more in interest over time. So, if you can afford it, it makes sense to go with the Standard Repayment Plan.

Applying for income driven repayment plans

Submit the income-driven repayment plan request form online at StudentLoans.gov, or fill out a paper form, which you can get from your loan servicer.

Remember: For IBR and PAYE, you must demonstrate financial need to be eligible. You can verify your adjusted gross income with your federal tax return or with the IRS Data Retrieval Tool, which adds your tax information to your application.

If you haven’t filed a tax return or have no income to report, you can provide alternative documentation, such as pay stubs or unemployment benefits.

Choose your IDR plan wisely

Income-driven repayment plans can be a great way to reduce your federal student loan payments. But it’s important to look at the long-term benefits and consequences.

On one hand, IDR plans can help you in the present. But in the future, you could deal with taxable income on forgiven loans and might pay more in interest over time. Be clear about your goals and choose the right repayment plan for you.

Rebecca Safier and Melanie Lockert contributed to this article.

Interested in refinancing student loans?

Here are the top 6 lenders of 2020!
LenderVariable APREligible Degrees 
1.89% – 6.66%1Undergrad
& Graduate

Visit Splash

1.89% – 5.90%2Undergrad
& Graduate

Visit Laurel Road

2.25% – 6.09%3Undergrad
& Graduate

Visit SoFi

1.99% – 5.64%4Undergrad
& Graduate

Visit Earnest

1.98% – 8.55%5Undergrad
& Graduate

Visit Lendkey

2.39% – 6.01%Undergrad
& Graduate

Visit Elfi

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of September 9, 2020. Information and rates are subject to change without notice.
 


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 6.09% APR (with AutoPay). Variable rates from 2.25% APR to 6.09% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.18% plus 2.32% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. 

4 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


5 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 10/15/2020 student loan refinancing rates range from 1.98% APR to 8.55% Variable APR with AutoPay and 2.99% APR to 8.77% Fixed APR with AutoPay.

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.