Income-driven repayment (IDR) plans are designed to make federal student loan repayment more manageable by basing your monthly payments on your income and family size.
Here’s a breakdown of key information:
Core Concepts:
Payment Calculation:
IDR plans calculate your monthly payment as a percentage of your discretionary income. This means your payments adjust based on your earnings.
“Discretionary income” is generally defined as the difference between your adjusted gross income (AGI) and a certain percentage of the poverty guideline for your family size.
Loan Forgiveness:
After a certain number of qualifying payments, any remaining loan balance may be forgiven. The length of this period varies depending on the specific IDR plan.
Federal Student Loans:
IDR plans are exclusively for federal student loans. Private student loans are not eligible.
Types of IDR Plans:
Saving on a Valuable Education (SAVE) Plan:
This is the newest IDR plan, replacing the Revised Pay As You Earn (REPAYE) Plan.
It offers lower monthly payments compared to other IDR plans.
It also has an interest benefit, preventing your loan balance from growing due to unpaid interest.
Income-Based Repayment (IBR) Plan:
This plan caps your monthly payments at a percentage of your discretionary income.
The percentage varies depending on when you received your loans.
Pay As You Earn (PAYE) Plan:
This plan is available to borrowers with newer federal loans.
It caps monthly payments at 10% of your discretionary income.
Income-Contingent Repayment (ICR) Plan:
This plan has the fewest eligibility requirements.
It caps monthly payments at the lesser of 20% of your discretionary income or what you would pay on a fixed repayment plan over 12 years, adjusted for income.
