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4 Income-Based Repayment Options for Federal Student Loans

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In a Nutshell

There are four different income-driven repayment plans for student loan borrowers that received federal student aid. The IBR Plan, the REPAYE Plan, the PAYE Plan, and the ICR Plan. They each have different eligibility requirements and potential benefits compared to the standard repayment plan.

Written by the Upsolve Team.  Reviewed by Attorney Andrea Wimmer
Updated April 19, 2021


Many students are able to receive and pay back their student loans under the standard repayment plan with no problem. But for many students that just isn’t possible. Their student loan debt is holding them back. What many don’t realize is that you don’t have to struggle to make your minimum monthly payments on the standard repayment plan. 

You can pay our student loans with an income-based repayment plan instead. As an alternative to a deferment or letting your federal student loan debt from the U.S. Department of Education slip into forbearance, you may want to consider an income-driven repayment plan. 

An income-driven repayment plan might be a better option for you. It doesn’t have to be as confusing or convoluted as a graduate-level underwater basket-weaving class.

There are various pros and cons to each of the different income-driven repayment plans. There are also eligibility requirements and repayment terms that will help you better understand these different plans. Typically these income-driven repayment plans are good for borrowers considering a Public Service Loan Forgiveness, also known as a PSLF.

We will talk about all of that step-by-step in this article so that you have a better idea of what you are getting into when you sign up for an IDR Plan, also known as an income-driven repayment plan, and what you should know to make sure you end up in a loan program that works for you.

Do I Qualify For An Income-Driven Repayment Plan?

If you have received federal student aid, you probably qualify for at least one of the four different plans. And that way you’ll probably be able to stretch your hard-earned paycheck a little further if you end up selecting an income-driven repayment plan.

Remember that income-driven repayment plans are only offered for federal student loans, not private loans. So, if you received your student loans from a loan servicer like a bank, credit union, or other private financial institution, you might want to look at other options and start by talking to your loan servicer.

Each of these four income-driven repayment options is different. Each plan has benefits and drawbacks that you’ll want to think about. Also, since each plan is unique, qualifying for each plan is determined by that specific plan.

What Are The Income-Driven Repayment Plans?

Here’s a quick summary of each of the four different income-driven repayment plans. Remember, there are pros and cons to each plan and eligibility is different for each of the four plans.

Income-Based Repayment Plan (IBR Plan)

An IBR Plan is a popular alternative to paying your loans back under a standard repayment plan. Your monthly payment is typically either 10 or 15% of your discretionary income.

Discretionary income in an IBR Plan and a PAYE Plan is the difference between your total income and 150% of the poverty guideline based on your family size and home state.

So, if for example, your total annual income is $36,000 and 150% of the poverty line in your state of residence for your family size is $22,000, then your discretionary income for an IBR Plan or a PAYE plan would be $14,000, the difference between the two amounts. That means that your monthly payment would be 10% or 15% of $14,000. 

Your IBR Plan monthly payment should not be higher than your payment under the standard repayment plan.

You are eligible for an IBR Plan if you have high debt compared to your income and your loans are:

  1. Direct Subsidized and Unsubsidized Loans;

  2. Subsidized and Unsubsidized Federal Stafford Loans;

  3. All PLUS loans made to students; and

  4. Consolidation loans (Direct or Federal Family Education Loan also known as FFEL) that do not include PLUS loans made to parents.

  5. Under an IBR Plan, your spouse’s income will only be included in your adjusted gross income if you file your tax returns together.

Revised Pay As You Earn Repayment Plan (REPAYE Plan)

The REPAYE Plan is available to federal student loan borrowers who received:

  1. Direct Subsidized Loans;

  2. Direct Unsubsidized Loans;

  3. Direct PLUS Loans made to students; and

  4. Direct Consolidation loans made to students, not parents.

One of the downsides of a REPAYE Plan is that you may end up paying more in the long run than you would under a standard repayment plan. The bright side is that any outstanding balance or amount remaining on your loan will be forgiven if you haven’t paid your loan off in full after 20 or 25 years. Unfortunately, you may have to pay income tax on the amount that is forgiven at that time.

Your monthly payment under a REPAYE Plan is 10% of your discretionary income and unlike the IBR Plan, it can be more than your monthly payment under the standard repayment plan.

Under a REPAYE Plan, you and your spouse’s income and loan debt will be included, whether you file your taxes jointly or separately.

Pay As You Earn Repayment Plan (PAYE Plan)

The PAYE Plan is specific to Direct loan borrowers that:

  1. Are a new borrower as of October 1, 2007;

  2. Has received a disbursement of a Direct loan as of October 1, 2011;

  3. Your required payment under the PAYE Plan must be less than your monthly payment under the standard repayment plan.

The eligible loans for a PAYE Plan are the same as a REPAYE Plan mentioned above as long as the requirements in (1) and (2) are met.

A PAYE Plan is typically best used when you have a high debt compared to your income.

Income-Contingent Repayment Plan (ICR Plan)

Finally, the last but certainly not the least alternate to the standard repayment plan is the ICR Plan. It is for Direct loan borrowers that received:

  1. Direct Subsidized Loans;

  2. Direct Unsubsidized Loans;

  3. Direct PLUS loans made to students; and

  4. Direct Consolidation loans (including Direct Consolidation loans made after July 1, 2006, that repaid PLUS loans made to parents).

Your monthly payment in an ICR Plan is the lesser amount of (a) or (b) described below.

(a) 20% of your discretionary income with your discretionary income being the difference between your total income and the poverty line based on your family size and home state; or

(b) A monthly fixed payment on a 12-year repayment period, adjusted to your income.

Two drawbacks of the ICR Plan are that your monthly payment amount can be more than the 10-year Standard repayment plan and you will end up paying more in the long run than you would under the 10-year Standard repayment plan.

Any remaining balance on your ICR Plan after 25 years will be forgiven. When that time comes, you may have to pay income tax on the amount forgiven when you prepare your tax returns and send those to the IRS.

Let’s Summarize...

There are four different income-driven repayment plans for student loan borrowers that received federal student aid. The IBR Plan, the REPAYE Plan, the PAYE Plan, and the ICR Plan. They each have different eligibility requirements and potential benefits compared to the standard repayment plan. They also have their own distinct drawbacks.

It’s a good idea to take some time to review these options and to also contact your loan servicer before you make your repayment plan request. Being equipped with more information on your loans will make determining which income-driven repayment plan is best for you more straightforward. There may be other options you didn’t know about that may be best for you in your specific situation.

Student loan debt doesn’t have to be overwhelming. If you are feeling overwhelmed, know that you’re not alone. There are millions of people going through something similar to you. Take your time to think over what is best for you and your family. 



Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

Attorney Andrea Wimmer

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Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team as Managing Editor. While in private practice, Andrea handled... read more about Attorney Andrea Wimmer

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