Income-driven repayment plans have come a long way since the debut of the first plan, Income-Contingent Repayment, back in 1995.
Over time, new plans were introduced through legislation and the Department of Education’s regulatory process, addressing limitations in earlier plans and responding to concerns about rising debt and post-2008 recession employment challenges.
Key features of income-driven repayment plans
Income-driven repayment (IDR) plans serve as a safety net for federal student loan borrowers struggling with payments on the 10-Year Standard Repayment Plan.
The plans offer reduced payments based on the borrowers’ adjusted gross income and 150% of the federal poverty line rather than the loan balance, extending repayment terms over 20 or 25 years.
Related: When Do Student Loans Go Away?
At the end of this term, any remaining balance is automatically forgiven.
Income-contingent repayment (ICR)
Income-Based Repayment (IBR)
Pay As You Earn (PAYE)
Revised Pay As You Earn (REPAYE)
Enrolling in an IDR Plan
To benefit from IDR forgiveness, you must first enroll in a plan. According to the U.S. Department of Education, enrollment takes about 10 minutes.
Using this site, you will enter your personal information into the Electronic Application, allow a transfer of tax information using the IRS Data Retrieval Tool, and review, electronically sign, and submit the completed form online.
Although you can apply online, contacting your loan servicer or a student loan attorney is a good idea for guidance.
To maintain your eligibility, be sure to recertify your income and family size yearly or whenever you experience a substantial change in income.
Marriage and IDR enrollment challenges
While the enrollment process is generally straightforward, marriage can introduce complications.
Enrolling in an IDR plan can be challenging for married borrowers — regardless of whether they file a joint or separate tax return — if one spouse doesn’t have student loans but has a high income.
Different repayment plans may require including the spouse’s income, potentially increasing the borrower’s monthly payments.
This unexpected rise in payments can disrupt a couple’s budget and complicate their financial management.
Related: Marrying Someone With Student Loans
Parents and IDR plans
Parent PLUS loan borrowers have limited repayment options to lower their monthly payment amount, with the Income-Contingent Repayment Plan as their primary choice.
In the ICR Plan, parents pay 20% of their discretionary income for 25 years, after which their outstanding balance is forgiven.
By choosing the ICR Plan, Parent PLUS borrowers can also qualify for Public Service Loan Forgiveness and comfortably transition to retirement with less worry about how they’ll afford their student loans.
Related: What Happens to Parent PLUS Loans When I Retire?