Written by Shawn Daei on August 27, 2018 in General

The optimism and hope that comes with earning a degree often comes with the burden of federal student loans. If your loan payments are greater than your income, there is an answer.

Income-driven repayment plans are designed to make it easier for federal student loan borrowers to make monthly payments. Monthly payments under an income based repayment plan are based on adjusted gross income, family size, state of residence, and type of federal student loan.


There are four different income-driven repayment plans to suit your needs:

  • Pay As You Earn Repayment Plan (PAYE plan)
  • Revised Pay As You Earn Repayment Plan (REPAYE Plan)
  • Income-Based Repayment Plan( IBR Plan)
  • Income-Contingent Repayment Plan (ICR Plan)


Other Important Facts

  • Income- Based Repayment is for all income borrowers: Low, Middle and High can qualify for benefits to finance a graduate or professional education.
    • IBR Formula: Annual payments are equal to 10% of your adjusted gross income after you exclude 150% of federal poverty guidelines according to household size, or approximately $17,000 for single borrowers.
  • Married borrowers can exclude spouse’s income from IBR and then include them when calculating household size, therefore payments are reduced and loan forgiveness is increased.


Do I Qualify?

Revised Pay As You Earn Repayment (REPAYE) Plan:

Any borrower with direct federal student loans can make payments with this plan. Your payment is always based on income and family size, regardless of changes to your income. This can mean that your repayment may be higher than the 10-year Standard Repayment Plan, if your income increases over time. 


PAYE and IBR Plans:

  • Requires proof of financial hardship and during periods of hardship, monthly payments will not exceed 10% of your income. If filing jointly, spouse’s income and loan debt is used to calculate monthly payment. To qualify, the payment you make under these plans must be less than what you would pay under a Standard Repayment Plan with a 10 year repayment period.
  • Generally, this requirement is met if federal student loan debt is higher than annual income or represents a significant portion of annual income.
  • To qualify for the PAYE Plan you must be a new borrower as of October 1, 2007 and have received a disbursement of a Direct Loan after October 1, 2007.

ICR Plan

Any borrower with direct federal student loans can make payments with this plan.

This plan is available for parent PLUS loan borrowers. Parent borrowers may combine their Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan and repay under the ICR plan.


How Long Will I Be in Repayment Under Each Plan?

Under all four plans, any remaining balance is forgiven if your federal student loans are not paid at the end of your period.

  • REPAYE Plan:
    • 20 years for undergraduate study loans
    • 25 years for loans received for graduate and professional study
  • PAYE Plan
    • 20 years
  • IBR Plan:
    • 20 years if you are a new borrower after July , 2014
    • 25 years if youre not a new borrower after July 1, 2014
  • ICR Plan:
    • 25 years


Is an Income Driven Repayment Plan Right for Me?

The Income Driven Repayment Plan will usually lower your federal student loan payments. Be aware that if you make lower payments monthly or extend the repayment period, the interest will increase over time. Under the current Internal Revenue Service (IRS) rules, you may be required to pay income tax on the amount that is forgiven if you still have a balance at the end of repayment period.


How to Apply

To apply, you must submit an application called the Income-Driven Repayment Plan Request. When you apply, you will be asked to provide your adjusted gross income (AGI) or alternative documentation showing income.


What you Will Need:

  • Personal Information: Address, email, and phone number
  • Spouse Information (if you are married) : Your spouse will also need to sign the electronic application.
  • Income Information: Once you complete your application you will be linked with the IRS Data Retrieval Tool to access and transfer your IRS tax return information.

If you want to learn more about the Income Driven Repayment Plans, please view the Fact Sheet provided by the Federal Student Aid.

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