Q: How to qualify for loan forgiveness under income-driven repayment plans?

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Over 25 years ago, the federal government began offering federal student loan borrowers the option to repay their loans based on their discretionary income (adjusted gross income, family size, and loan balance). They also promised that borrowers who chose to repay their loans under that plan would have their loans forgiven after 20 to 25 years of qualifying payments.

Since then, that income-based repayment option has grown into what the U.S. Department of Education refers to collectively as income-driven repayment plans. Although the initial plan has grown and evolved, the promise remains the same: make payments based on your income, and your loans will be forgiven. Use this guide to qualify for income-based repayment loan forgiveness.

Income-driven repayment plan forgiveness timeline

Your loan balance will be forgiven under an IDR plan after 20 years or 25 years of qualifying payments. Two factors control when your loans will be forgiven: (1) which IDR plan you choose; and (2) whether you borrowed federal loans in graduate school. Here's a breakdown of the forgiveness timeline for each plan:

  • Pay As You Earn (PAYE): forgives Direct Loan balance after 240 monthly payments (20 years)
  • Revised Pay As You Earn (REPAYE): for undergraduate loans, forgives Direct Loan balance after 240 monthly payments (20 years); for graduate loans, forgives the remaining balance on Direct Loans after 300 monthly payments.
  • Income-Based Repayment (IBR): for undergraduate loans, forgives Direct Loan balance after 240 monthly payments (20 years); for graduate loans, forgives Direct Loan/FFEL Loan balance after 300 monthly payments.
  • Income-Contingent Repayment (ICR): forgives Direct Loan balance after 240 monthly payments (20 years)

Forgiveness under an IDR plan isn't limited to loans made under the Direct Loan Program. Loans made under the Federal Family Education Loan Program and Federal Perkins Loan Program may also qualify for these plans if the borrower consolidates them into a Direct Consolidation Loan.

You can consolidate for free at the Federal Student Aid website, studentaid.gov.

REPAYE, PAYE, and IBR Plan Forgiveness

To qualify for forgiveness, you must have participated in either the IBR, PAYE, or REPAYE and satisfied at least one of these conditions while in that plan:

  • Made the required income-based monthly payments under the plan ($0 payment qualify)
  • Made the required monthly payments specified in IBR or PAYE after you no longer had a partial financial hardship or stopped making IBR or PAYE payments
  • Made monthly payments under any repayment plan that was not less than the amount required under the 10-Year Standard Repayment Plan
  • Made monthly payments under the Standard Plan for the balance of your loans that were outstanding at the time you first selected IBR or PAYE
  • Made payments under one of the other IDR Plans (including IBR, PAYE, REPAYE, and ICR), except income-sensitive repayment
  • Made the monthly payment amount under an alternative repayment plan after you failed to timely provide income documentation under REPAYE, but only if you later returned to the REPAYE program or entered another income-driven repayment program
  • Received an economic hardship deferment.

ICR Plan Forgiveness

You qualify for loan forgiveness under the income-contingent repayment plan after you make 300 monthly payments. Some borrowers may be eligible to have their loans immediately forgiven by switching to the REPAYE plan because they would then be eligible for loan forgiveness after making 240 monthly payments instead of having to make 300 payments.

Changes to income tax bomb law

Other loan forgiveness programs (e.g., the Public Service Loan Forgiveness Program) offer tax-free loan forgiveness. The IDR plans do not. So if a borrower completed an IBR plan and got her loans forgiven, a tax bomb would be waiting for her: the balance forgiven would be added to her taxable income for that tax return year. She would have to pay federal income taxes on that amount.

While the amount borrowed they would pay in taxes is far less than the student loan debt forgiven, the impending tax liability gives many borrowers pause.

Thankfully, the Biden Administration has temporarily directed the IRS to eliminate that tax liability.

In the spring of 2021, Congress approved President Joe Biden's stimulus package. Included in that package was legislation that makes all student loan forgiveness tax-free for the next 5 years.

It is known whether President Biden or his predecessors will extend this forgiveness.

How do I apply for student loan forgiveness after 20/25 years?

Technically, you don't have to apply for student loan forgiveness after your 20th or 25th year of payment. Your student loan servicer is supposed to track your eligibility for forgiveness and start the process to forgive your loans near the time you've met all eligibility requirements.

However, if you believe you've met the requirements, I would contact the loan servicer to alert them of that fact. There's no consequence to you alerting them that you're now eligible for forgiveness.

Problems with income-based repayment loan forgiveness

While loan forgiveness is possible under the income-driven repayment plans, a recent National Consumer Law Center report highlights that few borrowers have gotten their loans forgiven.

The Department of Education introduced income-driven repayment plans more than 25 years ago. Currently, 8 million Americans are repaying their student debt under an IDR plan. However, as of March 2021, only 32 borrowers have gotten federal student loan forgiveness under a plan.

The report blames mismanagement by student loan servicers for why so few borrowers have qualified for forgiveness. NCLC found that servicers:

  • steered borrowers in need of lower monthly payments away from IDR plans into forbearance or deferment
  • deterred borrowers from staying in IDR plans by failing to inform them of annual deadline recertification requirements to remain in those plans
  • improperly denied borrowers access to the program due to unlawful paperwork processing delays, inaccurate denials, lost income documentation paperwork, etc.

The NCLC report highlights that the plans aren't the issue; student loan servicers are the problem.

If your goal is to have your loans forgiven under an IDR plan, you must be diligent in ensuring you do all that is necessary to meet the requirements of your chosen plan.

How to maximize chances at IDR loan forgiveness

  • Recertify your family size and annual income before the end of your 12-month repayment term
  • Confirm your recertification application has been received and all necessary documents are included
  • Make your monthly payments on time (within 15 days of the due date)
  • Schedule auto-pay for your monthly student loan payments
  • Download your payment history each year
  • Check your payment history to make sure your payments are being counted properly
  • Keep track of the number of qualifying payments you have made on your federal student loans.

Also, before you consolidate, understand that consolidating from the FFEL program into the Direct Loan program resets the number of qualifying payments you've earned to zero.

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