PAYE vs IBR: Differences, Which Is Better, and What to Do Before 2028

For most borrowers, Pay As You Earn (PAYE) and Income-Based Repayment (IBR) produce the same monthly payment — 10% of discretionary income, capped at the 10-year standard repayment amount, with forgiveness after 20 years.

PAYE handles interest capitalization more favorably, and eligibility depends on when you first borrowed. Some borrowers qualify for PAYE but only the older, more expensive version of IBR.

PAYE is sunsetting by July 1, 2028. IBR survives. That timeline matters most for borrowers pursuing Public Service Loan Forgiveness (PSLF).

Eligibility for each plan depends on when you first took out federal student loans.

PAYE requires you to be a “new borrower” under a two-part test.

• First, you must have had no outstanding balance on a Direct Loan or Federal Family Education Loan (FFEL) Program loan as of October 1, 2007, or you must have had no outstanding balance on any federal loan at the time you took out a new one after that date.

• Second, you must have received a disbursement of a Direct Loan on or after October 1, 2011. Only Direct Loans are eligible. FFEL loans must be consolidated into a Direct Consolidation Loan to qualify.

IBR comes in two versions, and which one you qualify for changes the math:

• New IBR applies if you had no outstanding balance on a Direct Loan or FFEL loan when you received a new loan on or after July 1, 2014. Payments are 10% of discretionary income with forgiveness after 20 years.

• Old IBR applies to everyone else. Payments are 15% of discretionary income with forgiveness after 25 years — a higher percentage and a longer timeline than PAYE.

IBR accepts both Direct Loans and FFEL Program loans — no consolidation required for FFEL borrowers.

One enrollment bar is written into the IBR rules, and it is worth knowing about mainly so you do not worry about it prematurely. Under 34 CFR § 685.209(c)(3)(ii), a borrower who has made 60 or more qualifying repayments under REPAYE on or after July 1, 2024 may not enroll in IBR. That clock only starts on July 1, 2024, so no one can reach 60 such payments before mid-2029 — and months spent in SAVE’s administrative forbearance are not payments, which puts most borrowers coming off SAVE further from it still. It is a real provision, not a current obstacle.

The Oct 2007 – July 2014 Gap

If you first borrowed between October 2007 and June 2014, you may qualify for PAYE but not New IBR. In that scenario, your only IBR option is the Old IBR, at 15% of discretionary income with 25 years to forgiveness. PAYE would give you 10% and 20 years.

Getting placed in Old IBR when PAYE is available is a costly mistake. Servicers have historically confused the two “new borrower” definitions — PAYE’s Oct 2007 test and IBR’s July 2014 test — and placed borrowers in the wrong plan.

Partial Financial Hardship and IBR Eligibility

Both PAYE and IBR historically required you to demonstrate a partial financial hardship — meaning your calculated payment under the plan had to be less than what you would pay on the 10-year standard plan. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, removed this requirement for IBR by amending section 493C of the Higher Education Act. You can now enroll in IBR regardless of income, though the payment cap at the 10-year standard amount still applies.

PAYE’s partial financial hardship requirement was not addressed by OBBBA’s statutory text — only IBR was targeted. It was addressed by regulation instead. The RISE final rule (91 Fed. Reg. 23768, published May 1, 2026 and effective July 1, 2026) replaced the old “partial financial hardship” condition at 34 CFR § 685.209(c)(4) with an election to have your payment recalculated so it does not exceed the applicable amount — the same framework IBR uses. PFH is no longer a separate entrance test for PAYE. Section 685.209(f)(2) still caps the PAYE payment at the 10-year standard amount, but that is now a payment-calculation rule, not an eligibility gate.

One live caution on enrollment. The printed regulation at 34 CFR § 685.209(c)(4)(iv) still conditions PAYE on having been repaying under the plan as of July 1, 2024, which would close PAYE to borrowers who were not already on it. Whether that condition is still good law is unsettled — it came from the SAVE regulations that were later vacated, and the National Consumer Law Center treats it as vacated, while the Department’s own IDR application and guidance currently let borrowers select PAYE without applying it. Treat it as neither conclusively dead nor conclusively binding: if you were not on PAYE in July 2024 and want it, apply anyway and get any denial in writing.

One practical caveat: the Department’s servicer guidance and IDR form still describe PFH-style eligibility for PAYE, so processing has not fully caught up with the amended rule. If a servicer denies you PAYE for lack of partial financial hardship, that denial is contestable under the current regulatory text — get it in writing.

One additional eligibility constraint under OBBBA: borrowers who take out any new federal loan on or after July 1, 2026, lose access to both PAYE and IBR. Their only income-driven option will be RAP.

PAYE and New IBR use the same payment formula: 10% of discretionary income, divided by 12 for the monthly amount. Old IBR uses 15% instead.

Discretionary income under all three is calculated the same way — your adjusted gross income (AGI) minus 150% of the federal poverty guideline for your family size and state. If your AGI falls at or below 150% of the poverty guideline, your payment is $0.

All three versions cap your payment at the 10-year Standard Repayment Plan amount, calculated based on your total eligible balance at the time you entered the plan. If income growth pushes the calculated payment above the cap, you pay the capped amount instead.

Spouse Income and Filing Status

PAYE and IBR treat spouse income the same way. If you file taxes jointly, both spouses’ AGI is included in the payment calculation. If you file separately, only your income counts.

Filing separately lowers your student loan payment but may increase your total tax bill. The trade-off depends on the income gap between spouses, total loan balances, and which tax credits and deductions you lose by filing separately.

Both plans provide the same interest subsidy on subsidized loans: the government pays 100% of unpaid accruing interest for the first three consecutive years of repayment.

For borrowers who qualify for both PAYE and New IBR, this is the only substantive distinction between the two plans.

Under PAYE, unpaid interest does not capitalize while you remain on the plan. It also does not capitalize if you miss a recertification deadline or leave the plan. Interest accrues but stays separate from principal.

Under IBR, interest capitalizes — gets added to your principal balance — when you fail to recertify income by the deadline or when you leave the plan. Losing partial financial hardship was historically another capitalization trigger under IBR; with OBBBA removing the PFH requirement for IBR, that trigger is effectively moot. The recertification and departure triggers remain.

Why this matters: when interest capitalizes, your principal increases, and future interest accrues on the higher balance. Over 20 years, this compounding can add thousands of dollars, particularly if a missed recertification deadline capitalizes a large accrued interest balance.

Why this does not matter for PSLF: PSLF forgives the entire remaining balance after 120 qualifying payments, tax-free. Whether interest capitalizes has no effect — PSLF wipes the entire balance regardless. If you are pursuing PSLF, the capitalization advantage of PAYE is irrelevant.

Both PAYE and IBR qualify for PSLF. Payments made under either plan count toward the 120 qualifying payments required for forgiveness, as long as you meet employment and loan requirements. Switching between income-driven repayment (IDR) plans does not reset your PSLF payment count.

For PSLF borrowers, the monthly payment amount is what determines your total cost — not interest capitalization or forgiveness timeline. PAYE and New IBR produce the same payment. Old IBR produces a higher payment, which means you pay more over the 10 years before forgiveness.

The practical consideration is plan durability. IBR was created by federal statute — the College Cost Reduction and Access Act of 2007. PAYE was created by regulatory action under the Department of Education. That distinction played out: OBBBA sunsets PAYE by 2028 while preserving IBR. For PSLF borrowers who qualify for New IBR, starting on IBR avoids a forced plan change.

PAYE remains available through the wind-down period described above, but the plan phases out entirely by July 1, 2028 under OBBBA. Borrowers who are on PAYE can continue earning forgiveness and PSLF credit until then.

Borrowers on PAYE must transition to a different plan before July 1, 2028. The available options are IBR, RAP (starting July 1, 2026), or the standard repayment plan. If you do not elect one, the RISE final rule places you on RAP — or on IBR, if your loans are not RAP-eligible, which mainly means a Direct Consolidation Loan that repaid Parent PLUS loans (34 CFR § 685.209(c)(7)(iii)(A)). Inaction does not drop you onto the standard repayment plan. That is a different rule for a different situation: § 685.210(a)(2) puts a loan on the standard plan when the borrower picks nothing as the loan first enters repayment, and the standard-plan default borrowers are hearing about right now belongs to the SAVE wind-down, not to the 2028 PAYE sunset. Landing on RAP by default is still worth avoiding if RAP is not what you want, because it starts a 30-year forgiveness clock — elect deliberately rather than letting the deadline choose for you.

RAP uses a different payment formula — a sliding scale from 1% to 10% of AGI rather than 10% of discretionary income — with a 30-year forgiveness timeline and no payment cap. The differences between IBR and RAP affect monthly payments, forgiveness timelines, and plan flexibility.

For legacy borrowers — those with no loans disbursed on or after July 1, 2026 — choosing RAP is not a permanent decision. The RISE final rule says so in the codified text rather than by implication: 34 CFR § 685.210(b)(1) lets a borrower whose Direct Loans were made before July 1, 2026 change to any other repayment plan they are eligible for at any time, § 685.209(c)(3)(i) opens IBR to any Direct Loan borrower with eligible loans, and the preamble states that borrowers who do not take out additional loans will retain access to IBR as well. IBR itself does not sunset in 2028 — the gate on IBR is the date of your loans (§ 685.209(d)(5)), not the calendar — so a borrower who qualifies for IBR can move to RAP and move back.

PAYE and ICR are different, and the difference is worth stating carefully. The printed regulation bars re-enrollment once you leave either plan, which is where the “one-way door” description comes from. Whether that bar is still good law is the same unsettled question described in the eligibility section above — it came from the SAVE regulations that were later vacated, and the Department’s own application currently does not enforce it. So treat leaving PAYE as neither safely reversible nor certainly final: if you leave and later want back in, apply anyway and get any denial in writing.

Switching from PAYE to IBR does not reset your forgiveness timeline or PSLF payment count. But the transition requires a plan change application and a processing period — during which your account may be placed in forbearance. Payments made during processing forbearance generally do not count as qualifying payments for PSLF or IDR forgiveness. Borrowers close to PSLF should time the switch to avoid losing qualifying months during processing.

The right choice depends on when you first borrowed, whether you are pursuing PSLF, and how close you are to forgiveness.

You first borrowed on or after July 1, 2014. You qualify for both New IBR and PAYE, and the two plans produce identical payments. IBR is the stronger choice — it survives over the long term, and PAYE’s capitalization advantage is marginal for most borrowers and irrelevant for PSLF.

You first borrowed between October 2007 and June 2014. You likely qualify for PAYE, but only Old IBR — which means 15% instead of 10%, and 25 years instead of 20. If you are already on PAYE and close to forgiveness, staying on the plan through the wind-down makes sense. If you are early in repayment, elect IBR or RAP before July 1, 2028 — if you take no action, you will be placed on RAP by default, which is income-driven but runs a 30-year forgiveness clock instead of Old IBR’s 25. Check whether consolidating changes your New IBR eligibility, but verify with your servicer that consolidation does not reset your forgiveness clock.

You are pursuing PSLF and qualify for New IBR. IBR. Same payment, no sunset, no forced transition. If you are currently on PAYE, switch to IBR before the 2028 deadline. If you take no action, the default is RAP, which does qualify for PSLF — but it uses a different payment formula, and RAP months generally do not count back toward IBR’s forgiveness clock if you later switch.

You are pursuing PSLF and only qualify for Old IBR. PAYE produces a lower monthly payment, and for PSLF, lower payments mean more forgiveness. Weigh the lower payment against the sunset risk, and plan the timing of your switch to avoid losing qualifying months during processing.

You are on SAVE forbearance. SAVE is being terminated. Switch to IBR to start earning qualifying payments. Apply through StudentAid.gov.

You are on PAYE and within two years of 20-year forgiveness. Stay. Your payments continue to count during the wind-down, and switching this close to the finish line introduces unnecessary processing risk.