Income-Based Repayment Plans: A Complete Guide

If your federal student loan payments feel like they’re swallowing your entire paycheck, income-driven repayment plans can bring them down to a manageable level. These plans tie your payment to what you actually earn — not what you owe.

What Is Income-Based Repayment?

Income-driven repayment (IDR) is a category of federal student loan repayment plans that calculate your monthly payment based on your income and family size rather than your loan balance. If you earn less, you pay less. If your income grows, your payment adjusts accordingly.

There are four main IDR plans: SAVE (Saving on a Valuable Education), PAYE (Pay As You Earn), IBR (Income-Based Repayment), and ICR (Income Contingent Repayment). Each has slightly different eligibility rules, payment calculations, and forgiveness timelines.

After making payments for 20-25 years (depending on the plan), any remaining balance is forgiven.

How It Works: Step by Step

1. Confirm your loans are federal. IDR plans only apply to federal student loans — not private ones. Log in to studentaid.gov to check.
2. Choose your plan. Compare the four IDR options (details below) to see which gives you the lowest payment and best terms.
3. Apply through studentaid.gov. The application asks for your income, family size, and loan details. You can also apply through your loan servicer.
4. Your payment is calculated. It’s typically 5-20% of your discretionary income (the amount you earn above 150-225% of the poverty line, depending on the plan).
5. Recertify every year. You’ll need to update your income and family size annually. If you forget, your payment may jump to the standard amount.
6. After 20-25 years of qualifying payments, any remaining balance is forgiven. Under some plans, this forgiven amount may be taxable income.

The Four IDR Plans

SAVE (Saving on a Valuable Education)

• Payment: 5% of discretionary income for undergraduate loans, 10% for graduate loans
• Discretionary income threshold: Income above 225% of the federal poverty line
• Forgiveness: 20 years (undergrad) or 25 years (grad)
• Key benefit: Lowest payments of any IDR plan; unpaid interest doesn’t capitalize
• Note: SAVE replaced the older REPAYE plan

PAYE (Pay As You Earn)

• Payment: 10% of discretionary income
• Discretionary income threshold: Income above 150% of the poverty line
• Forgiveness: 20 years
• Eligibility: Must be a “new borrower” as of October 1, 2007, with a disbursement after October 1, 2011
• Payment cap: Never exceeds what you’d pay on the standard 10-year plan

IBR (Income-Based Repayment)

• Payment: 10% of discretionary income (new borrowers after July 1, 2014) or 15% (older borrowers)
• Discretionary income threshold: Income above 150% of the poverty line
• Forgiveness: 20 years (new borrowers) or 25 years (older borrowers)
• Payment cap: Never exceeds the standard 10-year plan amount
• Widest eligibility among IDR plans

ICR (Income Contingent Repayment)

• Payment: 20% of discretionary income or what you’d pay on a 12-year fixed plan, whichever is less
• Forgiveness: 25 years
• Key detail: The only IDR plan available for Parent PLUS loans (after consolidation)
• Highest payments of the four IDR plans

Pros and Cons

Pros:

• Payments are based on what you can actually afford
• Provides a safety net during low-income periods (payments can be as low as $0)
• Remaining balance is forgiven after 20-25 years
• Keeps you in good standing and avoids default
• SAVE plan prevents unpaid interest from growing your balance

Cons:

• You may pay more total interest over the life of the loan compared to standard repayment
• Forgiven amounts may be taxable income (though current tax rules exempt IDR forgiveness through 2025, and this may be extended)
• Requires annual recertification — miss it and your payment spikes
• Only applies to federal loans — private student loans don’t qualify
• Extending repayment to 20-25 years means living with student debt for a long time
• Plans and eligibility rules change with policy — what’s available today may shift

Who Is This Best For?

Income-driven repayment makes sense if:

• Your federal student loan payments under the standard plan are more than you can comfortably afford
• You’re in a lower-income job, career transition, or early in your career
• You’re pursuing Public Service Loan Forgiveness (PSLF), which requires IDR enrollment
• Your loan balance is high relative to your income
• You need breathing room to focus on other financial priorities (emergency fund, high-interest debt, etc.)

Example

You have $45,000 in federal student loans at 5.5% average interest. Your income is $42,000/year and you’re single.

Plan	Monthly Payment	Total Paid Over Life	Forgiveness Timeline
Standard (10-year)	$488	~$58,600	None
SAVE	~$88	Varies (with forgiveness)	20 years
PAYE	~$176	Varies (with forgiveness)	20 years
IBR (new borrower)	~$176	Varies (with forgiveness)	20 years

Under the SAVE plan, your payment drops from $488 to about $88/month — a savings of $400/month. That freed-up cash could go toward high-interest credit card debt, an emergency fund, or other financial goals.

The tradeoff: you’ll be making payments for up to 20 years instead of 10, and you may pay more in total interest (though the forgiveness at the end can offset this significantly, especially if your balance grows).

If your income rises substantially over time, your IDR payments will increase too — and you might end up paying the loans off before the forgiveness kicks in.

FAQ

Which IDR plan should I choose?

For most borrowers, SAVE offers the lowest payments because it uses a higher income threshold (225% of the poverty line vs. 150%) and a lower percentage of discretionary income (5% for undergrad loans). Start with SAVE unless you have a specific reason to choose another plan. If you have Parent PLUS loans, ICR is your only IDR option after consolidation.

Can I switch between IDR plans?

Yes. You can change your IDR plan at any time by reapplying. However, switching plans may reset your forgiveness clock in some cases. Review the specifics carefully or talk to your loan servicer before switching.

What about Public Service Loan Forgiveness?

If you work for a qualifying employer (government or nonprofit), PSLF forgives your remaining balance after 120 qualifying payments (about 10 years) — and that forgiveness is tax-free. You must be on an IDR plan (or the standard 10-year plan) to qualify. PSLF is one of the strongest reasons to enroll in IDR if you’re in public service.

Should I pay extra on an IDR plan?

It depends on your goals. If you’re aiming for forgiveness (either standard 20-25 year forgiveness or PSLF at 10 years), paying extra doesn’t help — you want to minimize payments and maximize the forgiven amount. If your income will likely grow enough that you’ll pay off the loans before forgiveness, paying extra at a strategic time can reduce your total interest.

Do private student loans have income-based options?

No. IDR plans are exclusively for federal student loans. Private lenders may offer hardship forbearance or modified payment plans, but these are lender-specific and far less generous. If you have a mix of federal and private loans, keep them separate — never consolidate federal loans into a private loan, as you’ll lose access to IDR and forgiveness programs.