Income-Driven Repayment Plans

Income-driven repayment plans are designed to make federal student loan payments more manageable by tying the monthly payment amount to your income and family size rather than the amount you owe. There are several IDR plans available, including the SAVE plan (Saving on a Valuable Education), PAYE (Pay As You Earn), IBR (Income-Based Repayment), and ICR (Income-Contingent Repayment). Each plan has slightly different eligibility requirements and payment calculations.

Under most IDR plans, monthly payments are set at a percentage of your discretionary income, which is defined as the difference between your adjusted gross income and a percentage of the federal poverty guideline for your family size and state. The SAVE plan, introduced in 2023, generally caps payments at 5% of discretionary income for undergraduate loans and 10% for graduate loans. Other plans typically set payments at 10% to 20% of discretionary income.

One of the most significant features of IDR plans is loan forgiveness. After making qualifying payments for 20 years (for undergraduate loans under some plans) or 25 years (for graduate loans or under certain plan types), any remaining balance may be forgiven. Under current law, forgiven amounts under IDR plans may be treated as taxable income in the year of forgiveness, though a temporary provision exempts forgiven amounts from taxation through 2025. Whether this exemption will be extended is uncertain.

IDR plans require annual recertification of your income and family size. Failing to recertify on time can result in your payment reverting to the standard 10-year repayment amount, and any unpaid interest may capitalize (be added to your principal balance). Staying on top of the recertification process is essential to maintaining the benefits of an IDR plan.

For those working in public service, IDR plans may pair well with Public Service Loan Forgiveness (PSLF), which forgives the remaining balance after just 10 years of qualifying payments while working for a qualifying employer. The combination of low IDR payments and PSLF can provide substantial relief for borrowers in government, education, healthcare, and nonprofit careers.