Income-driven repayment (IDR) plans cap federal student loan payments at a percentage of your discretionary income, making payments manageable regardless of loan balance. After 20-25 years of payments, remaining balances are forgiven.
Understanding Discretionary Income
IDR payments are based on discretionary income:
Discretionary Income = Adjusted Gross Income - 150% of Poverty Guideline
Example (single person, 2024):
- Income: $50,000
- 150% poverty guideline: ~$22,590
- Discretionary income: $27,410
- 10% of discretionary: $2,741/year = $228/month payment
SAVE Plan (Newest Option)
The Saving on a Valuable Education plan offers the most generous terms:
Payment Calculation
- Undergraduate only: 5% of discretionary income
- Graduate loans: 10% of discretionary income
- Mixed: Weighted average (5-10%)
- 225% poverty guideline protection (more income excluded)
Key Benefits
- Lowest payments of any IDR plan
- Government covers unpaid interest (no balance growth)
- Spousal income excluded if filing separately
- 10-year forgiveness for balances under $12,000
- No payment if income below threshold
Forgiveness Timeline
- 20 years for undergraduate loans
- 25 years for graduate loans
- 10 years for original balances under $12,000
PAYE (Pay As You Earn)
Eligibility
- Must be a new borrower as of Oct 1, 2007
- Must have received disbursement after Oct 1, 2011
- Payment amount must be less than standard 10-year payment
Payment Calculation
- 10% of discretionary income
- Capped at standard 10-year payment amount
Forgiveness
- 20 years for all loans
IBR (Income-Based Repayment)
New Borrower IBR
For loans after July 1, 2014:
- 10% of discretionary income
- 20-year forgiveness
Old IBR
For loans before July 1, 2014:
- 15% of discretionary income
- 25-year forgiveness
ICR (Income-Contingent Repayment)
The oldest IDR plan with less favorable terms:
- 20% of discretionary income OR fixed payment over 12 years, whichever is less
- 25-year forgiveness
- Only option for Parent PLUS loans (after consolidation)
Comparing IDR Plans
| Plan | Payment % | Forgiveness | Best For |
|---|---|---|---|
| SAVE | 5-10% | 20-25 years | Most borrowers |
| PAYE | 10% | 20 years | If SAVE ineligible |
| New IBR | 10% | 20 years | Alternative to PAYE |
| Old IBR | 15% | 25 years | Older borrowers only |
| ICR | 20% | 25 years | Parent PLUS only |
IDR for PSLF
All IDR plans qualify for Public Service Loan Forgiveness. SAVE typically results in lowest payments, maximizing forgiveness amount.
Annual Recertification
IDR plans require annual income recertification:
- Submit income documentation yearly
- Failure to recertify increases payments
- Can switch plans during recertification
- Update for major income changes
Tax Implications of IDR Forgiveness
Important tax consideration:
- PSLF forgiveness: Not taxable
- IDR forgiveness (non-PSLF): Currently not taxable through 2025
- After 2025: May be taxable as income (uncertain)
Plan for potential tax liability if relying on IDR forgiveness.
How to Enroll in IDR
- Log in at StudentAid.gov
- Go to Manage Loans section
- Select Apply for IDR
- Complete application with income info
- Choose plan (SAVE recommended for most)
- Submit and await servicer confirmation
Applications are processed within 2-4 weeks.
