The Complete Guide to Income-Driven Repayment Plans for Federal Student Loans

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Class of 2016 graduates left school with an average of $37,172 in student loan debt. With a Standard Repayment Plan of 10 years for federal student loans and an interest rate of 4.50%, that’s a monthly payment of $391. For some, it could be even higher.

If you feel like your monthly payments are too much, 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 percent 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 repayment plan is best for you.

In this article

Income-Based Repayment (IBR)
Pay As You Earn (PAYE)
Revised Pay As You Earn (REPAYE)
Income-Contingent Repayment (ICR)
Choosing a plan
Applying for income-driven repayment plans
Choose your IDR plan wisely

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:

Payment amount: Generally, 10 or 15 percent 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 percent of the federal poverty guideline for your family size and state.

Use our income-based repayment calculator to see what your monthly payment would be.

The 10 percent amount is for new borrowers who didn’t borrow from the Direct Loan Program or FFEL Program until July 1, 2014, or later. The 15 percent 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 also must 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 percent of your discretionary income, which is the difference between your annual income and 150 percent of the federal poverty guideline for your family size and state.

Use our PAYE calculator to see what your monthly payment would be.

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 percent of your discretionary income, which is the difference between your annual income and 150 percent of the federal poverty guideline for your family size and state.

Use our REPAYE calculator to see what your monthly payment would be.

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 percent of your discretionary income, which is the difference between your annual income and 100 percent 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 a plan

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 you could 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.

Melanie Lockert contributed to this article.

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% 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 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% 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. 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
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures


4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
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2.80% – 6.38%1Undergrad
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Visit Laurel Road
2.48% – 7.52%2Undergrad
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2.47% – 7.99%Undergrad
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Visit Lendkey
2.57% – 6.65%3Undergrad
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Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. 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 understand what you are buying, and consult 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. Please do your homework and let us know if you have any questions or concerns.