Income-Driven Repayment

Income-driven repayment summary:

• Income-driven repayment plans for federal student loans base your monthly student loan payment on a percentage of your discretionary income.

• There are four main types of income-driven repayment plans depending on needs and qualifications.

• Each year, you must update your income and family size information.

Income-Driven Repayment Definition and Meaning

Income-driven repayment refers to student loan debt payment plans that base your monthly loan payment on a percentage of your discretionary income. 

In most cases, discretionary income is defined as the difference between your annual income and 150% of the poverty guideline for your state and family size. If you choose the Saving on a Valuable Education (SAVE) plan, it's the difference between your annual income and 225% of the poverty guideline for your state and family size.

There are four types of income-driven repayment plans:

• Income-Based Repayment (IBR)

• Income-Contingent Repayment (ICR)

• Pay As You Earn (PAYE), which is for new borrowers only

• Saving on a Valuable Education (SAVE)

You can apply for these plans through your online federal student loan account.

Key Attributes of Income-Driven Repayment Plans

Income-driven repayment plans may help reduce your monthly payment, which could be helpful for new graduates who may be earning low salaries.

These plans are only available to student borrowers with student loans in good standing. Parents who took out loans on behalf of their children are not eligible for these plans.

When you're enrolled in an income-based repayment plan, you usually have to submit proof of your income each year, and the government may update your monthly payment accordingly.

The government generally forgives any remaining balance left at the end of the income-driven repayment period (usually 20 to 25 years). Forgiven debt may be considered taxable income, so you may be required to pay taxes on the forgiven amount in the year it's forgiven.