Income-Driven Repayment (IDR) Plans
Updated on April 17, 2019
Income-Driven Repayment (IDR) Plans
If you can’t afford the monthly payments of a Standard, Extended, or Graduated repayment plan, you’ll want to consider an Income-Driven repayment plan instead. Income-Driven repayment plans make your student loan payments more affordable.
How To Get This Plan
Eligibility for these plans will be based on your income, family size, the state you live in, and what type of federal student loans you have.
If you’re eligible, an Income-Driven repayment plan may allow you to make student loan payments as low as $0 a month. Income-Driven repayment plans also give you the opportunity to have your loans forgiven after a certain number of qualifying payments.
In order to find out if you are eligible, you’ll need to complete the Income-Driven Repayment Plan Request on StudentLoans.gov.
You might also need to notify your lender that you are seeking an Income-Driven repayment plan. Depending on your lender, they may not require you to make payments on your loan while your request is being reviewed.
If you are accepted for an Income-Driven repayment plan, you’ll be offered one of these plans:
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
- Income-Sensitive Repayment (ISR)
Although they are all considered Income-Driven repayment plans, there are some slight differences between them so let’s look at the details of each.
Revised Pay As You Earn (REPAYE)
Revised Pay As You Earn (REPAYE) plans require you to make monthly payments equal to 10% of your discretionary income . Specifically, this means your payments will be 10% of the difference between your annual income and 150% of the poverty guideline for your family size and state you live in.
If you’re married, your spouse's income will be factored in as well.
Revised Pay As You Earn plans technically don’t require you to prove financial hardship, but you’ll most likely pay more money over time if you have a high income and select this plan.
Pay As You Earn (PAYE)
The Pay As You Earn repayment plan (PAYE) is similar to the Revised Pay As You Earn repayment plan but it has some key differences. This plan requires you to make the same payment of 10% of your discretionary income but will only include your spouse's income if you file a joint tax return.
To be eligible, you will have to prove financial hardship. You will also need to be a new borrower on or after October 1, 2007, and have received a student loan on or after October 1, 2011.
If you meet these requirements, you will be guaranteed a monthly payment lower than what your payment would’ve been with a 10-year Standard repayment plan.
Income-Based Repayment (IBR)
An Income-Based repayment plan (IBR) requires you to make a monthly payment of 10% or 15% of your discretionary income but will only include your spouse's income if you file a joint tax return. If you had no outstanding balance as of July 1, 2014, and received a new student loan on or after that same date, you’ll pay 10%. If you don't meet those requirements, you’ll pay 15%.
To be eligible, you’ll need to prove financial hardship in your application.
Income-Contingent Repayment (ICR)
An Income-Contingent repayment plan (ICR) requires you to make monthly payments of either 20% of your discretionary income or the amount you would pay under a plan with fixed payments over 12 years adjusted to your income. Whichever is the lesser amount will be your payment. Once again, if you and your spouse file taxes jointly, your spouse's income will be included in the calculation of your monthly payment.
You also won’t need to prove financial hardship to be eligible for this plan.
Income-Sensitive Repayment (ISR)
The last Income-Driven repayment plan is an Income-Sensitive repayment plan (ISR). This plan is available to low-income borrowers who have Federal Family Education Loan (FFEL) Program loans.
With this plan, your monthly payments will increase or decrease each year based on your income and will pay off your loan within 15 years.
Renewing Your Income-Driven Repayment Plans
Regardless of what plan you are eligible for and select, you’ll need to renew your plan each year. This requires you to reapply and prove you are still eligible for the Income-Driven repayment plan you have.
Student Loan Forgiveness
All Income-Driven repayment plans also come with the benefit of student loan forgiveness. Depending on which plan you have, your student loans may be forgiven after 15 to 25 years. While this is an amazing benefit, you may have to pay income tax on any amount of student loans that are forgiven so keep this in mind.
Can I Switch My Plans?
Although you may need an Income-Driven repayment plan at the moment, you can switch plans at any time for free. Lenders often allow you to make this change directly from their websites. If not, give your lender a call and request a repayment plan change.
Ultimately, if your federal student loan payments are high compared to your income, you’ll want to get Whyze and give Income-Driven repayment plans a look. If you apply and are eligible, you could possibly get a more manageable monthly payment.