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These five repayment plans are designed to help you afford the monthly cost of your federal student loans if you have a high debt load compared to your salary. But they’re not right for everyone — in some cases, they could be more expensive than other options. And changing plans can come with an added cost.
An income-driven repayment (IDR) plan is a type of federal plan to pay off your student loans that’s based on your income. Depending on which you choose, you’ll pay anywhere between 10% to 20% of your monthly discretionary income, based on annual updates. The government forgives any remaining balance after 20 or 25 years. You must sign up for one of these plans to qualify for Public Service Loan Forgiveness (PSLF).
Which option is best for you depends on factors like your degree, loan type, when you took out your loans, your career plans, if you’re married and even how you file your taxes.
Yes. While you’re required to update your income each year, you can also make updates whenever your income has changed — like after you lose your job.
You can update your income on StudentAid.gov by clicking the link to annually recertify your income. Under Reason for income-driven repayment plan request, select “I am submitting documentation early to have my income-driven payment recalculated immediately.”
Plan | Best for | Monthly repayment | Term | |
---|---|---|---|---|
Revised Pay As You Earn (REPAYE) Plan |
| 10% of your monthly discretionary income |
| Read more |
Pay As you Earn (PAYE) Plan |
|
| 20 years | Read more |
Income-Based Repayment Plan |
|
|
| Read more |
Income-Contingent Repayment (ICR) Plan |
| 20% of your monthly discretionary income | 25 years | Read more |
Income Sensitive Repayment Plan |
| 4% to 25% of your gross monthly income | Up to 10 years | Read more |
Take a deeper dive into calculating your discretionary income
Your monthly discretionary income is the difference between your pretax income and 150% of the poverty guideline in your state for the number of people in your family.
Here’s how to calculate it:
Pay attention to your plan if you’re married. Some might consider your individual income, while others might count you and your spouse’s income together.
Let’s take a look at an example …
Say you’re single and live in Texas. The poverty guideline for your state and family size is $12,490.
If you multiply that by 1.5, you get $18,735. If you make $50,000 a year, your annual discretionary income would be $50,000 minus $18,735 — or $31,265.
Divide that by 12 and you get a monthly discretionary income of $2,605.42.
You might want to sign up for an income-driven repayment plan if any of the following ring true for you:
Consider these potential drawbacks before signing up for income-driven repayments:
You can find out which IDR plans you qualify for and how much each will cost you by using the Repayment Estimator on the Federal Student Aid (FSA) website.
Log in with your FSA ID and enter information about your family size, salary and state of residence. From there, you can see how much you might pay each month, the total cost of your loan, projected loan forgiveness and how long it’d take you to get out of debt.
It depends on the income-driven repayment plan you’re interested in. You might need to meet some or all of the following criteria:
You can sign up for an IDR plan by filling out a form on the Federal Student Aid website or completing the form by hand and mailing it to your loan servicer. The FSA recommends applying online, since it’s generally faster and simpler than applying by mail.
Step-by-step guide to filling out the IDR form
It takes 10 minutes to half an hour to fill out the IDR application online. How long it takes for you to be enrolled in an IDR plan depends on your servicer, however. Since the coronavirus outbreak began, this process has slowed down — it can take as long as 30 days to make changes to your repayment plan or sign up for forbearance.
However, you don’t need to sign up for either until 2021. That’s because the Department of Education not only lowered the interest rate on federal student loans to 0%, but also paused repayments until December 31, 2020. You can still make repayments toward your principal during this time, but you don’t have to.
You can learn more with our guide to managing your student loans during the coronavirus.
Every year you’re required to recertify your income by updating information on your IDR form. You can also do this on the same FSA page you visited when you signed up for income-driven repayments.
Not sold on income-driven repayments? Consider one of these alternative plans instead:
Income-driven repayments are ideal if you have a high student debt load compared to your income — and they’re required if you want to apply for PSLF. But they might come with a higher monthly cost than other plans if you have a high income. And your interest capitalizes if you ever decide to switch plans.
You can learn more about your repayment options with our guide to student loan repayment plans.
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