What Is an Income-Driven Repayment Plan?
6 Min Read | Last updated: September 15, 2025
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Income-driven repayment plans can help college grads with student loan debt by lowering monthly payments based on their income. See how they work.
At-A-Glance
- Stuck with high federal student loan payments? You may be eligible for an income-driven repayment plan.
- Income-driven repayment plans may help lower your monthly payments, but you’ll probably end up paying more interest over time.
- There are several plans available, so consult your federal student loan servicer to see what’s right for you.
If you’re a recent college grad and living on your own, you’re probably familiar – maybe too familiar – with how much of your budget student loan repayments can take up. One way to lighten the load may be through an income-driven repayment plan. If you’re eligible, these plans let you restructure your monthly payments as a percentage of your income, sometimes reducing how much you owe every month.
There are several income-driven repayment plans available, and eligibility requirements can be strict. If you think an income-driven repayment plan might be right for you, here’s what you need to know to get started.
Income-Driven Repayment Plans, Explained
An income-driven repayment plan lets you reduce your monthly federal student loan payment to a percentage – usually 10–20% – of your discretionary income. Any remaining loan balance is forgiven after you’ve made the equivalent of 20 to 25 years of qualifying payments, depending on the plan.1 Public Service Loan Forgiveness plans, which forgive your remaining balance after at least 10 years of qualifying payments, involve repayment under income-driven repayment plans.1
Income-driven repayment plans can only be used for federal loans. If you consolidated your federal loans into a private loan, you will not be eligible for an income-driven repayment plan. But you could be eligible if you consolidated your federal loans into a federal Direct Consolidation Loan.2
How Do Income-Driven Repayment Plans Work?
Most federal student loan types offer a six-month grace period that starts after you graduate or leave school. Following the grace period, you'll be asked to start repaying your student loans.3 But if you don’t think you’ll be able to comfortably afford the fixed monthly payment, you might be able to apply for an income-driven repayment plan.
There are three main steps to apply:
Step 1: Figure out which repayment plan is best for you.
There are four income-driven repayment plans: Pay As You Earn (PAYE), Saving on a Valuable Education (SAVE) - formerly the REPAYE Plan, Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR).1 Each has different specifications, loan terms, and eligibility requirements. Eligibility may vary between plans, but approval may be based on your income, family size, loan balance, the date you took out your loans, and the type of federal student loans you have. Understanding each plan can be complicated, but your federal loan servicer should be able to help you choose the right plan, free of charge.2 The chart below can start you on the road to finding out whether you’re eligible for one or more of the plans.
Key Attributes of Income-Driven Student Loan Repayment Plans
| Repayment Plan | Monthly Payment | Payment Terms |
|---|---|---|
| Pay As You Earn (PAYE) | 10% of your discretionary income |
|
| Saving on a Valuable Education (SAVE) | 10% of your discretionary income |
|
| Income Based Repayment | 10 or 15% of your discretionary income |
|
| Income-Contingent Repayment | 20% of your discretionary income |
|
Source:
Federal Student Aid
Step 2: Fill out an application.
When you find the right plan, you can apply online for free. You’ll need some personal information, like your verified Federal Student Aid (FSA) ID, address, contact information, adjusted gross income, and more.1
Step 3: Receive your monthly payment information.
If approved, your monthly payments will be based on a percentage of your discretionary income. But be aware, in this case discretionary is based on a specific formula – it is not up for discussion. To understand other definitions of discretionary income, read “What is Discretionary Income?” For the purposes of the PAYE and IBR repayment plans, discretionary income is defined as the difference between your adjusted gross income and 150% of the federal poverty benchmark income level for your family size and state. For the SAVE plan, discretionary income is the difference between your adjusted gross income and 225% of the federal poverty guideline.2 The calculation – and your monthly payment amount – might differ depending on your repayment plan and your specific financial circumstances. For example, under certain plans, your income includes your and your spouse’s income, if you’re married. Your spouse’s federal student loan debt, if any, might be considered, too.2
Important: You Must Reapply Every Year – On Time
If you’re on an income-driven repayment plan, you’ll have to recertify every year.1 Why? To account for any potential changes to your income and family situation.
Payment Forgiveness for Income-Driven Repayment Plans
After a set period of time – 20 or 25 years, depending on the plan and/or your status as an undergraduate or graduate/professional student – any remaining loan balance will be forgiven. But you may owe income tax on whatever amount is forgiven.1
Are Income-Driven Repayment Plans a Good Idea? The Pros and Cons
Ideally, the U.S. Department of Education suggests it’s best to pay more than the minimum payment.4 But income-driven repayment plans extend payoff periods, making it likely more interest will accrue – meaning you’ll probably end up paying more in the long run.5
Still, that doesn’t mean income-driven repayment plans are a bad idea. Here are the pros and cons so you can decide if an income-driven repayment plan is right for you:
Pros
- Lower monthly payments.
- Reduced payments won’t affect your credit score, as long as you’re paying consistently and on time.
- Any remaining balance is forgiven after 20–25 years.
- If you’re in the Public Service Loan Forgiveness Program, you might qualify for forgiveness after 10 years.
Cons
- Monthly payments change every year depending on your income and family situation. It could even rise above the standard 10-year repayment plan.
- You have to recertify your income and family situation every year.
- You may have to pay income tax on whatever remaining balance is forgiven.
- A longer payment period means you’ll be in debt longer and will likely pay more in interest over time.
The Takeaway
If you’re a recent college graduate and are facing a challenge making ends meet, an income-driven repayment plan may be an effective way to reduce the financial stress of student loan payments.
1 “Income-Driven Repayment Plans,” Federal Student Aid
2 “Questions and Answers About IDR Plans,” Federal Student Aid
3 “Student Loan Repayment,” Federal Student Aid
4 “5 Ways to Pay Off Your Student Loans Faster,” Federal Student Aid
5 “7 FAQs About Income-Driven Repayment Plans,” Federal Student Aid
Megan Doyle is a business technology writer and researcher whose work focuses on financial services and cross-cultural diversity and inclusion. She’s paying her student loans back on the standard 10-year repayment plan.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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