Income-driven repayment (IDR) plans are federal student loan repayment plans that are based on your income and what you can afford to pay. If you’re looking to reduce your federal student loan payments, exploring different IDR plans could be beneficial.
Key Takeaways:
The SAVE plan is a student loan repayment option that eliminates the capitalization of interest charges, as long as borrowers make their monthly payments on time. This is a significant benefit as unpaid interest is not added to the loan balance by the U.S. Department of Education.
On July 18, 2024, the SAVE plan was temporarily blocked by a federal appeals court due to ongoing litigation surrounding the IDR plan. During this period, borrowers enrolled in the SAVE plan have been moved into an interest-free forbearance. The Department of Education has also provided options for those nearing Public Service Loan Forgiveness (PSLF), allowing them to either ‘buy back’ months of PSLF credit or switch to a different IDR plan. Advantages of Income-Driven Repayment Plans include a path to forgiveness, where the remaining balance of student loans is forgiven after 20 or 25 years of payments, or even 10 years for the SAVE plan for borrowers with low balances. These plans also allow borrowers to pay what they can afford, and the payment amounts can be updated as needed, providing flexibility in case of financial emergencies. Disadvantages of IDR plans include the requirement to recertify the plan annually, which can be time-consuming and may result in increased monthly payments if a borrower’s income changes. Additionally, borrowers with defaulted loans are ineligible for IDR plans, and not all interest is covered, leading to capitalized interest and increased total debt. To qualify for IDR plans, borrowers must be current on their loans. Each IDR plan has specific eligibility requirements that must be met. The SAVE plan is available to any borrower with qualifying student loans.Income-driven repayment plans are designed to help borrowers manage their student loan payments based on their income and family size. Here’s a breakdown of the different plans available:
PAYE and IBR: The estimated payment you make for either of these plans has to be less than what you would pay on the standard repayment plan within a 10-year period. For PAYE, only loans disbursed after Oct. 1, 2011, are eligible.
ICR: Like SAVE, any federal student loan borrower is eligible for this plan. But ICR is the only income-driven repayment plan that accepts PLUS (Parent Loan for Undergraduate Students) loans made to students. Keep in mind that no repayment plan accepts PLUS loans made to parents (including ICR), but you can consolidate your PLUS loans with a direct consolidation loan and then apply for ICR.
What Is the Income Requirement for Income-Driven Repayment (IDR) Plans?
Income amounts vary based on the IDR plan that you’re interested in. For instance, IBR and PAYE plans require your payments—which are based on your income—to be less than the standard repayment plan if you were to repay your loans within 10 years.
Will Income-Based Repayment Hurt My Credit Score?
Completing an application for income-driven repayment does not trigger a hard credit check and won’t cause your credit score to drop. If you miss payments or are late on your student loans—through IDR or otherwise—then your credit score could decrease.
How Long Does Income-Driven Repayment Last?
Income-driven repayment lasts up to 20 or 25 years, depending on which IDR plan you’re on. After that, the remaining balance is forgiven.
The Bottom Line
With federal student loans, you have a lot of different repayment options, both based on your income and otherwise. Making payments based on your income and family size through an IDR plan means you pay what you can, not necessarily what your lender decides is appropriate.
If you’re thinking about enrolling in an IDR plan, visit StudentAid.gov and see which ones you’re eligible for. If you’re unsure what you might qualify for, use the estimator and input your loan and income details to see different payment options. Make sure to review all your payment options to see which plan could be right for you.
