Income-Driven Repayment Plan Forgiveness — What to Know

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Each income-driven repayment plan — IBR, ICR, PAYE, and REPAYE — writes off the remaining debt after borrowers faithfully make payments for years. The IRS ordinarily taxes the forgiven student loan balance, but during the pandemic, federal lawmakers made the forgiveness tax-free through 2026.

Income-driven repayment plans help borrowers stay out of default and in good standing by giving them an alternative to making payments on a 10-year standard repayment plan. Each plan ties monthly payments to a portion of your discretionary income and stretches the repayment period from 10 years to 20 to 25 years. They also come with another benefit: the federal government will write off the outstanding balance after two decades of payments.

These bonuses don't apply to private student loans. Ask your lender if they offer any private student loan relief options.

Keep reading to learn how to get income-driven repayment plan forgiveness ASAP.

Income-driven repayment plan forgiveness timeline

Federal student loan borrowers who choose a repayment plan based on their income can get their loans forgiven after making at least 20 years' worth of payments. Here's when your loans will be forgiven under each plan:

  • Pay As You Earn (PAYE): forgives Direct Loan balance after 240 monthly payments (20 years). Eligibility for the PAYE Plan is contingent on you being a new borrower.
  • Revised Pay As You Earn (REPAYE): for undergraduate loans, forgives Direct Loan balance after 240 monthly payments (20 years). The REPAYE plan writes off the remaining balance on Direct Loans after 300 monthly payments for graduate loans.
  • Income-Based Repayment (IBR): for undergraduate loans, forgives Direct Loan balance after 240 monthly payments (20 years). The IBR plan writes off the balance on Direct Loans and FFEL Loans after 300 monthly payments for graduate loans.
  • Income-Contingent Repayment (ICR): forgives Direct Loan balance after 300 monthly payments (25 years). ICR is the only repayment option that leads to Parent PLUS Loan forgiveness.

During the Covid-19 forbearance that began March 2020 and has been extended through May 2022, each month counts toward the payments needed for income-driven repayment plan forgiveness — even if you made no payment. Likewise, public servants are receiving credit towards PSLF, and borrowers in default can complete the student loan rehabilitation program without making a payment. You can click here to read about the student loan rehabilitation CARES Act benefits.

Learn More: Why Does My Spouse Have to Sign My Income-Driven Repayment Plan?

How to qualify for IDR loan forgiveness

Qualifying for IDR loan forgiveness takes two steps:

Step 1: Choose a repayment plan.

Each repayment plan caps payments at a portion of your discretionary income, which is based on your adjusted gross income (AGI) and family size. Most borrowers with Direct Loans are eligible for IBR, REPAYE, and PAYE plans. Parent PLUS Loan borrowers are eligible to enroll in the ICR plan only. And borrowers with loans made under the Federal Family Education Loan Program are eligible for IBR and ICR. They can gain access to REPAYE if added to a Direct Consolidation Loan.

You can apply for an IDR plan on the Federal Student Aid website, studentaid.gov, or by sending your student loan servicer a paper request form.

Learn More: What Is Considered a Significant Change in Income

Step 2: Make the qualifying payments.

Depending on which plan you choose and if you borrowed loans for graduate school, you'll have to make either 240 or 300 payments. Your monthly payment amount can vary each year as your current income and family size change. To stay in a plan, you must recertify income-based repayment annually or whenever your income changes to get your loans and any unpaid interest written off.

Learn More: Student Loan Forgiveness After 20 Years

Changes to income tax bomb law

Other student loan forgiveness programs like the Public Service Loan Forgiveness Program offer tax-free loan forgiveness. But the IDR plans don't. If you have a balance left at the end of the repayment term, the IRS will treat the forgiven amount as taxable income for that tax return year.

However, as part of the American Rescue Plan, lawmakers temporarily made forgiven student loan debt tax-free through the end of 2025.

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 U.S. 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.

UP NEXT: How to Pay Off Student Loans Fast

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