If your student loan payments are high compared to your income, you may be eligible to switch your repayment plan to one that calculates your monthly payment based on your income and family size.
If you need to make lower monthly payments, one of the three following income-driven plans may be right for you:
- Income-Based Repayment Plan (IBR)
- Pay As You Earn Repayment Plan (PAYE)
- Income-Contingent Repayment Plan (ICR)
What’s the difference between the three plans?
While there are other minor differences between these three repayment plans, these are four significant ways they differ:
- Eligibility requirements (Who qualifies)
- How payments are calculated
- Length of the repayment period
- Eligible Loan Types
You can compare the high-level differences below:
It’s also important to note that your loan types must also be eligible to be repaid under an income-driven plan.
How do I decide which income-driven repayment plan to choose?
1) See which plans you qualify for. Not everyone qualifies for an income-driven repayment plan. You can use our Repayment Estimator to estimate your payment amount for all repayment plans, including income-driven plans.
- Check and see whether the types of federal student loans you have are eligible. In some cases, you may need to consolidate your student loans in order to be able to repay the loan(s) under an income-driven plan or the income-driven repayment plan that offers the lowest monthly payment.
- If you’re considering our IBR or PAYE, you’ll need to make sure you meet the debt-to-income ratio requirement. To qualify, the payment that you would be required to make under the IBR or PAYE (based on your income and family size) must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period. Generally, you will meet this requirement if your federal student loan debt is higher than your annual discretionary income or represents a significant portion of your annual income.
2) Compare Plans Based on YOUR Circumstances. Using our repayment estimator, you can estimate your monthly payment amount, repayment period, projected loan forgiveness, and the total interest you’ll pay over the life of your loan. Just log in using your Federal Student Aid PIN, enter basic information about your income, family size, tax filing status, and state of residence and out pops a comparison based on your individual circumstances. You can also view the comparison in graph format!
3) Weigh the Pros and Cons. Income-driven repayment plans may lower your federal student loan payments. However, whenever you make lower payments or extend your repayment period, you will likely pay more in interest over time—sometimes significantly more. In addition, under current Internal Revenue Service (IRS) rules, you may be required to pay income tax on any amount that is forgiven if you still have a remaining balance at the end of your repayment period.
Before you apply for an income-driven repayment plan, contact your loan servicer with any questions. Your loan servicer will help you decide whether one of these plans is right for you.
I’ve decided which income-driven plan is right for me. How do I apply?
If you decide that an income-driven repayment plan is right for you, there are a few steps you need to take. To apply, you must submit an application called the Income-Driven Repayment Plan Request. You can submit the application online at StudentLoans.gov or on a paper form, which you can obtain from your loan servicer. Along with the application, you’ll need to provide income information. Find out more information about the documentation you must provide.
FACT: The application allows you to select an income-driven repayment plan by name, or request that your loan servicer determine what income-driven plan or plans you qualify for, and to place you on the income-driven plan with the lowest monthly payment amount.
Is there anything else I should know about choosing an income-driven repayment plan?
- You must provide updated documentation each year You must provide your loan servicer with updated income documentation and certify your family size on the Income-Driven Repayment Plan Request each year, generally around the same time of the year that you first began repayment under the income-driven plan that you selected. It’s important for you to provide the required information by the annual deadline specified by your loan servicer. If you miss the deadline, you’ll remain on the same income-driven repayment plan, but your monthly payment will no longer based on your income (this means your payment will increase).
- Your payment amount can change from year to year. Your required monthly payment amount may increase or decrease if your income or family size changes from year to year.
Nicole Callahan is a digital engagement strategist at the Department of Education’s office of Federal Student Aid.