Income-Driven Repayment Plans: A Complete Guide to Paying What You Can Afford

What Is Income-Driven Repayment?

Income-driven repayment (IDR) plans are a group of federal student loan repayment plans that base your monthly payment on your income and family size, rather than your loan balance. This is different from standard fixed-payment plans, which set a set monthly amount that is spread out over the repayment term based on the total amount you borrowed.

With IDR plans, your payment can be as low as $0 if you have a low income. Most plans also include a provision for loan forgiveness after a certain number of years of qualifying payments, usually 20 or 25 years, depending on the plan and when you first borrowed.

It's important to note that the IDR landscape changed in 2026: the SAVE plan (formerly REPAYE) is no longer available due to a federal court order, and the PAYE and ICR plans are being phased out. For borrowers who take out a loan or consolidate on or after July 1, 2026, the only income-driven repayment option is the new Repayment Assistance Plan (RAP).

• IDR plans are available for most federal student loans, but not for private student loans or Parent PLUS loans unless they are consolidated.
• Payments are based on discretionary income, which is your adjusted gross income minus a certain percentage of the federal poverty guideline for your family size.
• You must recertify your income and family size every year, which may change your monthly payment.
• Under many IDR plans, you can have a $0 monthly payment if your income is low enough.

Sources: Federal Student Aid (U.S. Department of Education), Savingforcollege.com

Types of Income-Driven Repayment Plans

There are several income-driven repayment plans, each with its own payment formula and forgiveness timeline. The table below summarizes the key features of the plans that are available or will be phased out soon, based on the most recent information from the U.S. Department of Education.

Note that the Repayment Assistance Plan (RAP) is the only income-driven option for loans disbursed on or after July 1, 2026, and specifically for those new loans. The SAVE plan, which replaced REPAYE, is no longer available due to a federal court order; borrowers who were on SAVE will need to consider other options.

• If you have loans from before July 1, 2026, you may still be able to enroll in IBR, PAYE, or ICR, but PAYE and ICR will no longer be available after July 1, 2028.
• Parent PLUS loans are not eligible for IDR unless they are consolidated into a Direct Consolidation Loan before July 1, 2026, and you enroll in an IDR plan before July 1, 2028.
• If you have defaulted on your federal student loans, you are not eligible for any IDR plan, but you may become eligible after loan rehabilitation.

Sources: Federal Student Aid (U.S. Department of Education), American Express, FinAid, Student Loan Borrower Assistance

How Monthly Payments Are Calculated

Your exact monthly payment depends on the plan you choose, your adjusted gross income (AGI), and your family size. The central concept is 'discretionary income,' which is generally defined as the difference between your AGI and 150% of the federal poverty guideline for your family size. Your payment is then calculated as a percentage of that discretionary income.

For example, under the IBR plan, your payment is 10% or 15% of your discretionary income (depending on when you first borrowed). Under PAYE, it's 10% of discretionary income. Under ICR, it's 20% of discretionary income.

If your income is low enough, your payment could be as low as $0, but it may change as your income or family size changes. Since you must recertify your income and family size each year, your payment is recalculated annually.

• Income used: Adjusted Gross Income (AGI) from your tax return.
• Family size includes you, your spouse (if you file jointly), and any dependents you claim.
• The federal poverty guideline is updated each year and varies by state and family size.

Sources: Federal Student Aid (U.S. Department of Education), American Express, FinAid, Savingforcollege.com

How to Apply for an Income-Driven Repayment Plan

Applying for an IDR plan is straightforward and free. You can apply online through StudentAid.gov. The online application allows you to link to your tax information, which can simplify the process.

Before applying, you can use the Loan Simulator tool on StudentAid.gov to compare repayment plans, estimate monthly payments, and check your eligibility. This can help you decide which plan best fits your financial situation.

• Go to StudentAid.gov and sign in with your FSA ID.
• Select the 'Income-Driven Repayment' plan you want and complete the online application.
• You may be asked to provide information about your income and family size, or you can give consent for the Department of Education to access your IRS tax return.
• Your servicer will process your application and notify you of your new payment amount.

Sources: Federal Student Aid (U.S. Department of Education), Sallie Mae

Pros and Cons of Income-Driven Repayment

IDR plans offer significant benefits but also have drawbacks you should weigh.

Pros include lower monthly payments based on income, which can be as low as $0 for low-income borrowers, and the possibility of having any remaining balance forgiven after 20 or 25 years of qualifying payments. Payments made under an IDR plan may also count toward Public Service Loan Forgiveness (PSLF) if you meet other requirements.

Cons include the fact that forgiveness after 20-25 years may be treated as taxable income, meaning you could owe taxes on the forgiven amount. Also, because payments are recalculated every year, your payment could increase if your income rises. Additionally, the current phase-out of certain plans may limit your options, and the new plans may have different terms.

• Pros: lower payments, potential forgiveness, and PSLF eligibility.
• Cons: possible tax on forgiven amount, annual recertification hassle, and changes in plan availability.

Sources: Federal Student Aid (U.S. Department of Education), Savingforcollege.com, Federal Student Aid (YouTube), FinAid

How Income-Driven Repayment Affects Loan Forgiveness

Most IDR plans offer forgiveness after 20 or 25 years of qualifying payments, depending on the plan and when you first borrowed. However, it's important to understand the conditions and tax implications.

Under IBR, for example, new borrowers (first borrowed on or after July 1, 2014) receive forgiveness after 20 years, while older borrowers receive forgiveness after 25 years. PAYE offers forgiveness after 20 years, and ICR after 25 years.

The forgiven amount may be considered taxable income by the IRS. However, loans forgiven under the Public Service Loan Forgiveness program are not taxed, and payments made under IDR plans may count toward PSLF if you work full-time for a qualifying employer.

To benefit from forgiveness, you must make the required number of qualifying payments. Missing annual recertification may cause your payment to be recalculated, but it does not disqualify you from eventual forgiveness as long as you continue making payments.

Sources: Federal Student Aid (U.S. Department of Education), American Express, Savingforcollege.com, Federal Student Aid (YouTube), FinAid