Income-Driven Repayment Plans Explained: Which One Is Right for You?

What Is Income-Driven Repayment?

Income-driven repayment plans are federal student loan repayment options that base your monthly payment on your income and family size, rather than on the total amount you owe. These plans can make payments more affordable, especially if your income is low relative to your debt, and they offer forgiveness after a set number of years of qualifying payments.

For many years, the U.S. Department of Education offered several IDR plans, including Income-Based Repayment (IBR), Pay As You Earn (PAYE), Income-Contingent Repayment (ICR), and the Saving on a Valuable Education (SAVE) plan. However, significant changes are occurring as a result of federal legislation. The SAVE plan has been blocked by a court order and is no longer available. Additionally, starting July 1, 2026, a new plan called the Repayment Assistance Plan (RAP) will be introduced, and some existing plans will be phased out.

• IDR plans are only available for federal student loans.
• Payments are tied to your income and family size.
• Any remaining balance may be forgiven after 20 to 30 years, depending on the plan.

Sources: Federal Student Aid (U.S. Department of Education), Student Loan Borrower Assistance, U.S. Department of Education, The Institute for College Access & Success (TICAS)

Eligibility Requirements for IDR Plans

Eligibility for income-driven repayment plans depends primarily on when you took out your loans, the type of loans you have, and your income. Generally, you must have federal student loans, and you must demonstrate that your income is low enough relative to your debt to qualify. Specific eligibility varies by plan.

If you took out any federal student loan on or after July 1, 2026, the only IDR plan available to you is the new Repayment Assistance Plan (RAP). If all of your federal loans were taken out before July 1, 2026, you may still be able to enroll in the legacy plans—IBR, PAYE, and ICR—as long as you don't take out new loans on or after that date. PAYE and ICR will be terminated as of July 1, 2028, but IBR will remain available for borrowers with pre-July 2026 loans.

• New borrowers (loans taken on or after July 1, 2026) can only use RAP.
• Borrowers with pre-July 2026 loans can use legacy plans (IBR, PAYE, ICR) until they're phased out or continue with IBR.
• The SAVE plan is no longer available due to a court order.

Sources: The Institute for College Access & Success (TICAS), NerdWallet, U.S. Department of Education, Student Loan Borrower Assistance

Overview of the Current IDR Plans

The SAVE plan is not included in this table because it has been blocked by a court order and is no longer available. If you were previously enrolled in SAVE, you must choose another repayment plan.

Sources: The Institute for College Access & Success (TICAS), NerdWallet, U.S. Department of Education, Saving for College

How Payments Are Calculated

Your monthly payment under an IDR plan depends on the plan's formula and your income and family size. For the legacy IBR and PAYE plans, payments are based on 'discretionary income,' which is defined as the amount of your adjusted gross income (AGI) that exceeds 150% of the federal poverty line for your family size. For ICR, the multiplier is even lower—100% of the federal poverty line—meaning that more of your income is considered discretionary, which is why ICR payments are typically higher.

The new Repayment Assistance Plan (RAP) uses a different calculation. This means that, unlike the legacy plans, the calculation does not use discretionary income defined by a poverty-line multiplier.

Because the specific percentage under RAP and the exact discretionary income formula under the legacy plans can vary based on your circumstances, it's essential to use the official student loan calculators or consult with your loan servicer to get an accurate estimate for your situation.

• Discretionary income definitions differ: IBR and PAYE use 150% of the poverty line; ICR uses 100%.
• RAP uses a percentage of AGI, not discretionary income.
• Family size affects poverty line calculations and the $50 per dependent reduction under RAP.

Sources: The Institute for College Access & Success (TICAS), NerdWallet, Saving for College, U.S. Department of Education

Income Recertification and Annual Paperwork

If you're on an income-driven repayment plan, you're required to update your income and family size information each year. This 'recertification' process ensures your payment amount reflects your current financial situation. If you don't recertify, your monthly payment may increase to the amount you would pay under a standard 10-year repayment plan, and you'll lose credit toward loan forgiveness for that period.

The annual paperwork typically involves submitting an IDR plan request form, which may include providing documentation such as your most recent federal tax return or using the IRS Data Retrieval Tool to import your income information directly. You'll also need to certify your family size, which may require providing documentation for dependents if requested.

You can typically complete this process online through your loan servicer's website. It's important to note that you must recertify annually, even if your income hasn't changed—this is a required step to remain in the plan. Failing to recertify can also lead to your loans being placed into forbearance, during which interest may accrue. Always check with your servicer for specific deadlines and instructions.

Sources: Federal Student Aid (U.S. Department of Education), Student Loan Borrower Assistance

Loan Forgiveness Under IDR Plans and Tax Implications

One of the main benefits of IDR plans is that any remaining loan balance is forgiven after a certain number of years of qualifying payments. For the Repayment Assistance Plan (RAP), the repayment term is capped at 30 years (360 monthly payments), after which any remaining balance is discharged. For legacy plans, forgiveness is available after 20 years for IBR loans taken out between July 1, 2014 and July 1, 2026, and after 25 years for pre-2014 IBR loans and for ICR. PAYE offers forgiveness after 20 years.

The tax treatment of forgiven amounts under IDR plans is currently uncertain. Whether forgiven debt will be considered taxable income depends on future legislation and IRS guidance. Borrowers should consult a qualified tax professional to understand the potential tax liability in their specific situation.

Additionally, if you are in a qualifying public service job, you may be able to obtain forgiveness through the Public Service Loan Forgiveness (PSLF) program after 10 years, which is separate from IDR forgiveness.

• RAP forgiveness: after 30 years of payments.
• IBR (2014-2026 loans): forgiveness after 20 years; pre-2014 loans: 25 years.
• PAYE: forgiveness after 20 years.
• ICR: forgiveness after 25 years.
• Tax treatment of forgiven debt is uncertain as of 2026; consult a tax professional.

Sources: The Institute for College Access & Success (TICAS), NerdWallet, U.S. Department of Education, Saving for College

How to Apply for an IDR Plan

To apply for an income-driven repayment plan, you normally complete the IDR plan request form with the U.S. Department of Education or through your loan servicer. The form asks for your income information, which you can often import directly from your federal tax return using the IRS Data Retrieval Tool. You'll also need to certify your family size.

For the new Repayment Assistance Plan (RAP), the application process will likely follow similar steps, but details may be available on the official Federal Student Aid website as the plan rolls out. If you're not already on an IDR plan, you can apply online at StudentAid.gov or through your loan servicer's website. It's important to apply before your requested start date, and contact your servicer if you have questions or need assistance.

Sources: Federal Student Aid (U.S. Department of Education)

Decision Matrix: Choosing Among IDR Plans

When comparing the income-driven repayment plans, consider the following decision criteria: whether you are a new borrower (on or after July 1, 2026) or an existing borrower with loans before that date, the payment formula (percentage of discretionary income or AGI), whether there is a cap tied to the Standard 10-Year payment, the repayment period for forgiveness, and whether the plan will remain available in the long term.

Sources: The Institute for College Access & Success (TICAS), NerdWallet, U.S. Department of Education, Saving for College

Which IDR Plan Fits Your Situation?

Choosing the right income-driven repayment plan depends on your loan type, when you borrowed, and your financial goals. Here are some key decision criteria to consider:

If you have loans that predate July 1, 2026, you can choose among the legacy plans (IBR, PAYE, ICR). However, PAYE and ICR will end on July 1, 2028, so IBR may be the better long-term option for those seeking forgiveness after 20 or 25 years. IBR also includes a cap that your payment won't exceed the 10-year standard amount, which provides protection if your income increases.

If you are a new borrower taking out loans on or after July 1, 2026, the only IDR plan available is RAP. RAP offers a simplified payment formula based on your total adjusted gross income, with a fixed repayment period of 30 years.

Because your payment under ICR is based on a higher percentage of your discretionary income (20% compared to 10% for IBR and PAYE), ICR may result in higher monthly payments. ICR is often used for Parent PLUS loans, but note that Parent PLUS loans may not be eligible for certain IDR plans unless they are consolidated.

Before deciding, evaluate your monthly budget, the total interest you'll pay over time, and whether you plan to seek Public Service Loan Forgiveness. Use the official student loan repayment calculators to estimate your payments under each plan.

Sources: The Institute for College Access & Success (TICAS), NerdWallet