Income-driven repayment (IDR) plans are federal student loan repayment plans that are based around what you can afford to pay and your income. If you’re trying to lower your federal student loan payments, you may want to explore different income-driven repayment plans.

What Are Income-Driven Repayment Plans?

Income-driven repayment plans, or IDR plans, allow federal student loan borrowers to make payments based on their family size and a percentage of their discretionary income.

Borrowers are automatically enrolled in the Standard Repayment Plan following a six-month grace period after leaving school. However, you can request a different repayment program at any time, including one of the four IDR plans.

How Income-Driven Repayment Plans Work

Each income-driven repayment plan requires you to make repayments that range from 5% to 20% of your discretionary income, depending on the plan you choose. Discretionary income is based on family size and must be updated annually. If your income is low enough, your monthly payment under the Saving on a Valuable Education (SAVE) plan could be $0. You won't be obligated to make payments and it won’t impact your repayment timeline or credit score.

After 20 or 25 years, any remaining balance on your loan is forgiven. For smaller balances under the SAVE plan, forgiveness could be granted in as little as 10 years.

Types of Income-Driven Repayment Plans

The government offers four income-driven repayment plans. They are:

• Saving on a Valuable Education (SAVE) Plan
• Pay As You Earn Repayment (PAYE) Plan
• Income-Based Repayment (IBR) Plan
• Income-Contingent Repayment (ICR) Plan

In August 2023, the Biden administration launched the Saving on a Valuable Education (SAVE) plan. Borrowers previously enrolled in the Revised Pay As You Earn Repayment (REPAYE) plan have been automatically switched over to this newer plan. There are some big differences in how the SAVE plan works compared to other IDR plans. For example:

• For undergraduate borrowers, monthly payments will be reduced from 10% of discretionary income to 5%. Those who have both undergrad and graduate loans will have a monthly payment of about 5%-10% of discretionary income.
• The plan also changes how discretionary income is calculated. This means if you’re a single borrower making $15 an hour, you won’t have any discretionary income available to cover student loan payments and therefore your monthly obligation is $0. The U.S. Department of Education believes an estimated 1 million borrowers will qualify for $0 monthly student loan payments.
• Some student borrowers have chipped away at their student loans for years without making a dent. This is due to the capitalization of interest charges. The SAVE plan puts an end to this. As long as you keep current with your monthly payments, the U.S. Department of Education will not assess unpaid interest to your student loan balance.

Advantages and Disadvantages of Income-Driven Repayment Plans

Advantages

• Path to forgiveness: All IDR plans will forgive the remaining balance of your student loans after 20 or 25 years of making payments, depending on your loans and plan. For the SAVE plan, this could be as little as 10 years of making payments for borrowers with low balances.
• Pay what you can: Income-driven repayment plans calculate monthly payments based on what you can comfortably afford. Even if you’re hit with a financial emergency, such as losing your job, you can adjust your payments accordingly.
• Can update as needed: While it’s required to recertify your IDR plan at least every year, you can update it whenever changes are necessary. That means if you get a new job or your family expands, you should recertify. It also means that if you lose your job and don’t currently have a source of income, you should recertify so that your payments can get reduced accordingly.

Disadvantages

• Recertification required: Unless you’re enrolled in the new SAVE plan’s automatic recertification, you’ll need to recertify your plan every year. This can be time consuming, and it could result in a low monthly payment increasing, assuming a borrower’s discretionary income also increases over time.
• Defaulted loans ineligible: If you’re currently in default on your federal student loans, you’re not eligible for IDR plans. This hurts borrowers who are already having a hard time making payments and may not have a way out without becoming current on their loans.
• Not all interest is covered: Because payments are based on income, not all payments will cover the interest that accrues. That unpaid interest is added to the unpaid principal balance, or capitalized, and increases the total amount owed. All plans (aside from the new SAVE plan) capitalize interest, causing balances to balloon to a much larger amount than what was originally borrowed.

Qualifications for Income-Driven Repayment Plans

To qualify for IDR plans, you’ll need to be current on your loans. Each individual IDR plan has its own set of further eligibility requirements that you’ll need to meet to qualify for that specific plan.

• SAVE: Any borrower with qualifying student loans is eligible for this IDR plan. 
• PAYE and IBR: The estimated payment you make for either of these plans has to be less than what you would pay on the Standard Repayment Plan within a 10-year period. For PAYE, only loans disbursed after Oct. 1, 2011, are eligible.
• ICR: Like SAVE, any federal student loan borrower is eligible for this plan. But ICR is the only income-driven repayment plan that accepts PLUS (Parent Loan for Undergraduate Students) loans made to students. Keep in mind that no repayment plan accepts PLUS loans made to parents (including ICR), but you can consolidate your PLUS loans with a direct consolidation loan and then apply for ICR.

The Bottom Line

With federal student loans, you have a lot of different repayment options, both based on your income and otherwise. Making payments based on your income and family size through an IDR plan means you pay what you can, not necessarily what your lender decides is appropriate.

If you’re thinking about enrolling in an IDR plan, visit and see which ones you’re eligible for. If you’re unsure what you might qualify for, use the estimator and input your loan and income details to see different payment options. Make sure to review all your payment options to see which plan could be right for you.