Income Driven Repayment Simplified

1. Revised Pay As You Earn (REPAYE) Plan (Renamed SAVE Program)

• Eligibility: Available to Direct Loan borrowers; there’s no specific date requirement for loans to qualify.
• Payment Structure:
  • Generally, 10% of discretionary income.
  • Payments are recalculated each year based on income and family size.
  • REPAYE considers both spouses’ incomes and loan debts if married, regardless of whether taxes are filed jointly or separately.
• Forgiveness:
  • 20 years for undergraduate loans.
  • 25 years for graduate loans.
• Interest Subsidy: Offers a 50% subsidy on any unpaid interest, reducing the accrual on subsidized and unsubsidized loans.

Best for: Borrowers with lower incomes or those whose income has dropped since leaving school, especially if they anticipate a rise in income.

2. Pay As You Earn (PAYE) Plan

• Eligibility: Only borrowers with Direct Loans who received a disbursement on or after October 1, 2011, and who had no outstanding federal loans as of October 1, 2007, qualify.
• Payment Structure:
  • Payments are capped at 10% of discretionary income but will never exceed what you would pay on a Standard 10-Year Plan.
  • Calculated annually based on income and family size.
  • Spouse’s income and loan debt only considered if taxes are filed jointly.
• Forgiveness:
  • 20 years for all borrowers.
• Interest Benefit: Limited interest subsidy (only unpaid interest accrual is subsidized).

Best for: Borrowers with relatively low income but who anticipate a steady income increase, and those who want to minimize monthly payments without exceeding a 20-year term.

3. Income-Based Repayment (IBR) Plan

• Eligibility: Available to Direct and FFEL Loan borrowers; eligibility criteria depend on the loan disbursement date.
• Payment Structure:
  • New Borrowers (after July 1, 2014): Payments are capped at 10% of discretionary income, with a 20-year forgiveness period.
  • Existing Borrowers (before July 1, 2014): Payments are capped at 15% of discretionary income, with a 25-year forgiveness period.
  • Payments are recalculated yearly based on income and family size.
  • Spouse’s income and loan debt only considered if filing jointly.
• Forgiveness:
  • 20 years for new borrowers.
  • 25 years for existing borrowers.
• Interest: No specific subsidy on unpaid interest.

Best for: Borrowers with financial hardship and a large debt-to-income ratio who may not qualify for REPAYE or PAYE but still seek reduced payments.

4. Income-Contingent Repayment (ICR) Plan

• Eligibility: Available to Direct Loan borrowers, including Parent PLUS Loan borrowers (after consolidation).
• Payment Structure:
  • Payments are the lesser of:
    • 20% of discretionary income, or
    • The amount you would pay on a 12-year fixed repayment plan, adjusted for income.
  • Recalculated annually based on income and family size.
  • Spouse’s income considered only if taxes are filed jointly.
• Forgiveness:
  • 25 years for all borrowers.
• Interest: No subsidy on unpaid interest accrual.

Best for: Parent PLUS Loan borrowers who consolidate to become eligible for ICR or borrowers with fluctuating income who need flexible payments based on their earnings.

Key Considerations Across All Plans

1. Family Size: All plans adjust payments based on family size, which could lower payments for larger families.
2. Annual Recertification: Borrowers must recertify their income and family size each year to maintain eligibility and ensure payments are accurately calculated.
3. Tax Implications: Forgiven loan amounts after the repayment term may be considered taxable income.
4. Loan Forgiveness Options: Each program has a forgiveness period (ranging from 20-25 years), after which the remaining balance is forgiven. However, borrowers working in qualifying public service positions may be eligible for Public Service Loan Forgiveness (PSLF) in as little as 10 years.