Income-driven repayment plans

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.

What’s an income-driven repayment plan?

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.

5 types of income-driven repayment plans

Take a deeper dive into calculating your discretionary income

Why sign up for an IDR plan?

You might want to sign up for an income-driven repayment plan if any of the following ring true for you:

• Want to qualify for PSLF. Only repayments under an IDR plan count toward this popular forgiveness program.
• Looking for lower monthly repayments. If you have a high debt-to-income ratio, signing up for an income-driven repayment plan can make your student loans more affordable in the short term.
• Want to have your loans forgiven at end of term. Any remaining balance on your student loans is forgiven at the end of the term — with the exception of the Income Sensitive Repayment Plan.

What are the drawbacks?

Consider these potential drawbacks before signing up for income-driven repayments:

• Not cheaper for everyone. If you owe less than you make in a year, you could actually end up paying more on an IDR plan compared to the alternatives.
• Interest capitalizes if you switch plans. This means that any unpaid interest that added up on an IDR plan gets added to your loan balance, increasing both the short- and long-term cost of your loan.
• Extra paperwork. You have to recertify your income each year to stay eligible for an IDR plan.
• Forgiveness might be taxable. The IRS generally considers forgiven debt taxable income, meaning you might get stuck with a higher tax bill — unless you qualify for PSLF or another forgiveness program with a work requirement.

Can I qualify for an IDR plan?

It depends on the income-driven repayment plan you’re interested in. You might need to meet some or all of the following criteria:

• Loan type. Not all federal loans are eligible for all IDR plans. Make sure yours qualify before you sign up.
• Debt-to-income ratio. For some plans, your IDR repayments must be lower than what they’d be on the 10-year Standard Repayment Plan. This all depends on how much debt you have in relation to your annual salary.
• Loan issue date. Some IDR plans don’t accept older student loans.
• Outstanding debts when loans were issued. Even if your loans were issued recently enough, you might not qualify if you were paying off older federal loans when you received those funds.
• Consolidation. Some types of loans must be consolidated before they can qualify for income-driven repayments, like Parent PLUS and FFEL Loans.

How do I sign up for an income-driven repayment plan?

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

How do I update my income?

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.

3 alternatives to an income-driven repayment plan

Not sold on income-driven repayments? Consider one of these alternative plans instead:

• Standard Repayment Plan. While this 10-year plan will cost you the most up front, you’ll pay the least in interest and get out of debt the fastest than any other federal repayment plan.
• Graduated Repayment Plan. If you’re starting a career with the potential for a serious pay increase in the next decade, this plan allows you to start with low repayments that increase every two years.
• Extended Repayment Plan. This plan stretches out your loan term to 25 years with fixed or graduate repayments. In some cases, it could give you lower monthly repayments than any of the IDR plans.

Bottom line

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.

Frequently asked questions

• Are there income-driven repayment plans for private student loans?

  Generally, no. Most private student loan providers don’t offer income-driven repayment options — at least not officially. If you’re really struggling with repayments due to an unforeseen change to your financial situation — say your parents got divorced — your servicer might be willing to put you on an unofficial income-driven plan.

• What happens if I take out more loans while on an income-driven repayment plan?

  Your loan term might change, depending on the IDR plan you’re signed up for. For example, if you take out graduate student loans and pay them off under the REPAYE Plan with your undergraduate loans, your loan term will extend from 20 to 25 years. Otherwise, it shouldn’t affect your loan term.

• Do I have to recertify each year even if my family size or income has stayed the same?

  Yes, you’re required to recertify your IDR plan each year to remain eligible — regardless of your income.