Income-Driven Repayment Plans

The U.S. Department of Education (ED) utilizes multiple loan servicers to manage the billing and servicing of federal student loans. Unless you apply for an Income-Driven Repayment Plan, your loan servicer will enroll you in the Standard Repayment Plan by default. What’s the Difference?

An Income-Driven Repayment Plan is tailored to help make repaying your student loan debt more manageable by adjusting your monthly payment amount based on your income, family size, and federal student loan debt.

If your current loan payment is high compared to your income, consider repaying your loans under one of the following income-driven plans:

Income-Based Repayment (IBR): This plan calculates your payment based on your income and family size. It can significantly reduce your monthly payments, and in some cases, your payment could be as low as $0 per month, depending on your circumstances.

The Pay as You Earn (PAYE) repayment plan, similar to the Income-Based Repayment (IBR) plan, calculates your monthly payment based on your income and family size. This option is especially beneficial for individuals with significant debt compared to their income.

Saving on a Valuable Education (SAVE): Formerly known as the REPAYE program, the SAVE plan offers income-driven repayment for undergraduate and graduate/professional study loans. It adjusts your payments based on your financial situation.

Enrolling in an income-driven repayment plan can be challenging for several reasons:

1. Payment Variability: Monthly payments are based on income and family size so that they can fluctuate as your financial situation changes. A significant bonus or promotion could increase costs, and eligibility for the IDR plan might be lost.
2. Longer Repayment Timelines: IDR plans often extend the repayment period, meaning paying off your loans takes longer. While this can make payments more manageable, you'll be in debt longer.
3. Interest Accumulation: Sometimes, borrowers pay more interest over time due to extended repayment periods. This can happen if the monthly payments don’t cover the accruing interest.
4. Complex Application Process: Applying for an income-driven repayment plan is not a one-and-done process. Borrowers typically need to recertify their eligibility annually. Failing to do so can result in reverting to the standard repayment plan, potentially leading to higher monthly bills.
5. Servicer Issues: Some borrowers face obstacles due to loan servicers' application processing delays. For instance, more than 1.25 million pending income-driven repayment plan applications were reported, with some applications pending for over 30 days without resolution. Navient, one of the nation's most extensive student loan servicers, paid nearly $2 billion to settle claims by 38 states and the District of Columbia that it deceived thousands of borrowers into costly, long-term forbearance plans that caused students to pay more than they should have.