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Payments too high? Try an Income-Driven Repayment plan (IDR)

Updated: Jul 15

Your monthly federal student loan payment is set at an amount that is supposed to be affordable based on your salary and family size in an income-driven repayment plan (ICR). Here is a quick guide for how to pick the right repayment plan for your needs.


TABLE OF CONTENTS

Types of Plans

Monthly Payment Calculation

Repayment Terms

ICR Eligibility Requirements

Annual Renewal Required

Consequences of Late Recertification


Types of Plans

There are four income-driven repayment programs to choose from:


  • Revised Pay As You Earn Repayment Plan (REPAYE Plan)

  • Pay As You Earn Repayment Plan (PAYE Plan)

  • Income-Based Repayment Plan (IBR Plan)

  • Income-Contingent Repayment Plan (ICR Plan)


You must fill out an application if you want to repay your federal student loans using an income-driven repayment plan. You should also repay your federal student loans using an income-driven repayment plan if you are seeking Public Service Loan Forgiveness.

Monthly Payment Calculation

In an income-driven repayment plan, how is the monthly payment amount calculated?


In most income-driven repayment plans, your payment amount is a proportion of your discretionary income. Depending on the plan, the proportion varies. The chart below shows how each income-driven plan's payment amounts are calculated. You may not have any monthly payments at all, depending on your income and family size.

REPAYE

Approximately 10% of your disposable income.

PAYE (Pay As You Earn)

Generally, 10% of your discretionary income, but no more than the amount in the 10-year Standard Repayment Plan.

Plan IBR

If you are a new borrower on or after July 1, 2014*, you will typically pay 10% of your discretionary income, but never more than the 10-year Standard Repayment Plan amount.


If you are not a new borrower on or after July 1, 2014, generally 15% of your discretionary income, but never more than the 10-year Standard Repayment Plan amount.


ICR Plan

Whichever is the least of the following:


  • 20% of your discretionary income, or

  • What you would pay over the course of a 12-year repayment plan with a fixed payment, adjusted for your income.


How do I determine the amount of my monthly payment?

Loan Simulator compares predicted monthly payments for all federal student loan repayment programs, including income-driven repayment options. This comparison is vital since, depending on your specific circumstances, income-driven plans may not give you the lowest payment amount. Another repayment plan may result in a reduced payment.

Repayment Terms

How long will I be in repayment under each plan?

Different repayment terms apply to income-driven repayment plans.


  • REPAYE Plan – 20 years if all of the loans you are repaying are for undergraduate studies. If any of the loans you are repaying under the plan were for graduate or professional study, you'll have to wait 25 years.

  • PAYE -You will be in repayment for 20 Years.

  • IBR- If you are a new borrower on or after July 1, 2014, you will be in repayment for 20 Years.


If you are not a new borrower on or after July 1, 2014, you will have 25 years to repay your loan.


  • ICR - You will be in repayment for 25 Years


If your federal student loans are not entirely repaid at the end of the payback period, any remaining loan balance is forgiven under all four plans. Periods of economic hardship deferment, periods of payback under some other repayment plans, and periods when your required payment is zero will all contribute against your total repayment duration for any income-driven repayment plan.


Whether you will have a balance to forgive at the end of your payback period is determined by a variety of factors, including how quickly your income rises and how substantial your income is in comparison to your debt. Due to these reasons, you may be able to return your loan in full before the conclusion of the repayment period. Your loan servicer will keep track of your qualifying monthly payments and years of repayment and tell you when you are approaching the point where any leftover loan balance will be forgiven.


If you're on an income-driven repayment plan and working toward loan forgiveness through the Public Service Loan Forgiveness (PSLF) Program, you may be eligible to have any remaining loan balance forgiven after 10 years of qualifying payments, rather than 20 or 25 years. Payments made under any of the income-driven repayment plans are eligible for the PSLF Program.

ICR Eligibility Requirements

Under any of the income-driven repayment schemes, defaulted loans are not eligible for repayment. A Fresh Start Program for Defaulted or Delinquent Borrowers will become available once repayment resumes in September.

For REPAYE, all eligible loans can be repaid under this program.


PAYE and IBR Each of these programs has an eligibility condition that you must meet in order to be eligible for it. To qualify, the monthly payment amount you would have to make under the PAYE or IBR plans (depending on your salary and family size) must be less than what you would have to pay under the 10-year Standard Repayment Plan.


  • You do not qualify if the amount you would have to pay under the PAYE or IBR plan (depending on your salary and family size) is larger than the amount you would have to pay under the 10-year Standard Repayment Plan.

  • In general, if your federal student loan debt exceeds your yearly discretionary income or accounts for a major amount of your annual income, you will meet this condition.


To qualify for the PAYE Plan, you must be a first-time borrower in addition to satisfying the requirements listed above. This means you must have had no outstanding debt on a Direct Loan or FFEL Program loan on or before October 1, 2007, and you must have received a Direct Loan disbursement on or after October 1, 2011.


ICR Plan

Under this plan, any borrower with qualified federal student loans can make payments. For parent PLUS loan borrowers, this is the sole income-driven repayment option available. Even though PLUS loans granted to parents are not eligible for any of the income-driven repayment plans (including the ICR Plan), parent borrowers can consolidate their Direct PLUS or Federal PLUS Loans into a Direct Consolidation Loan and repay the new consolidation loan under the ICR Plan (though not under any other income-driven plan).

Annual Renewal Required

Will I always pay the same amount each month for ICR Plans?

No. If your income or family size varies from year to year, your minimum monthly payment amount may increase or decrease under any income-driven repayment plans. You must "recertify" your income and family size every year. This means you must update your income and family size statistics with your loan servicer so that your payment can be recalculated. Even if your income or family size has not changed, you must still do this annually.

When it is time to recertify, your loan servicer will email you a reminder notification. To recertify, you must apply for your desired income-driven repayment plan. You will be asked the reason you are submitting an application. Your response will be that you are presenting documentation of your income in order to renew your payment amount for the year.


Although you are only required to recertify your income and family size once a year, you can submit updated information and ask your servicer to recalculate your payment amount at any time if your income or family size changes significantly before your annual certification date (for example, due to loss of employment). Submit a fresh application for an income-driven repayment plan to accomplish this. Respond that you are providing documentation early because you want your servicer to recalculate your payment right away when asked why you are submitting the application.


Before the annual date when you are mandated to update your income and household size information, you are not required to report changes in your financial situation. You can choose to wait until your loan servicer notifies you that updated income information is required at the regularly scheduled period. If you opt to wait, the amount of your current required monthly payment will not change until you provide fresh income information.

Consequences of Late Recertification

What happens if you fail to recertify by the deadline?

It's critical that you recertify your income and family size before the deadline each year. The repercussions of failing to recertify your income by the deadline differ based on the plan.

CONSIDER: “Difficulties could persist for borrowers who do not recertify on time, with 25 percent in forbearance and 7 percent delinquent while still not recertified six months later.” - cfpb report


You will be removed from the REPAYE Plan and placed on an alternative repayment plan if you do not recertify your income by the annual deadline. Your required monthly payment under this alternative repayment plan does not depend on your income. Instead, your payment will be the amount required to repay your loan in full by the earliest of (a) 10 years from the date you begin repaying under the alternative repayment plan, or (b) the end of your REPAYE Plan repayment period of 20 or 25 years. You have the option of leaving the alternative repayment plan and repaying under any other plan for which you are eligible.

If you do not recertify your income by the annual deadline under the PAYE Plan, the IBR Plan, or the ICR Plan, you will stay on the same income-driven repayment plan, but your monthly payment will no longer be based on your income. Instead, based on the loan amount you owed when you first entered the income-driven repayment plan, your necessary monthly payment amount will be the amount you would pay under a Standard Repayment Plan with a 10-year repayment duration. If you give your servicer updated income information and your current income still qualifies you to make payments based on income, you can resume making payments based on income.


If you do not recertify your income by the annual deadline under the REPAYE, PAYE, or IBR programs, any unpaid interest will be capitalized, in addition to the repercussions indicated above (added to the principal balance of your loans). Because you will be paying interest on the increasing loan principal sum, this will increase the total cost of your loans over time.


If you do not recertify your family size each year under any of the income-driven repayment plans, you will stay on the same repayment plan, but your servicer will assume you have a family size of one. If your real family size is larger than your servicer's assumption because you did not recertify your family size, this could result in a higher monthly payment or (for the PAYE and IBR plans) the loss of eligibility to make payments based on income.


“Overall, the share of borrowers actively in repayment on their loans was 27 percent higher at the end of borrowers’ first year in IDR than just before IDR enrollment “ - cfpb findings

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