You’ve probably heard of Public Service Loan Forgiveness (PSLF) if you have federal student loans. It’s a well-known program that eliminates some student loan debt for qualified borrowers. But it’s not the only way to lessen the burden of student loan debt. You might be eligible to have your loans forgiven with an income-driven repayment plan, too.
An income-driven repayment plan allows you to make payments based on your earnings for 20 to 25 years, depending on your plan. Any remaining balance will be forgiven at the end of your required payment period, as long as you’ve fulfilled all the requirements of your program.
What Is Income-Driven Repayment Plan Forgiveness?
Income-driven repayment plans cap student loan payments at a percentage of your discretionary income. That's the amount of your income that remains after you deduct taxes, other mandatory charges, and expenditures on necessary items. The specific amount varies by plan:
- Revised Pay as You Earn (REPAYE): Payments are capped at 10% of discretionary income.
- Pay as You Earn (PAYE): Payments are capped at 10% of discretionary income, and they will never be higher than the monthly payment under the standard 10-year repayment plan.
- Income-Based Repayment (IBR): Payments are capped at 10% of discretionary income and can't exceed the payment amount for the standard repayment plan for borrowers who obtained their first loan after July 1, 2014. Payments are capped at 15% of discretionary income for those who borrowed earlier than that date, but they still can't exceed the amount due under the standard plan.
- Income-Contingent Repayment (ICR): Payments are capped at the lesser of either 20% of discretionary income or the amount that would be due under a 12-year payment plan with a fixed payment, adjusted for income.
Consider the pros and cons of different repayment options before choosing one. You want to make sure your plan is helping you pay down your student loans and not increasing your debt instead.
There's a limit on the monthly payment amount, so it's possible that your payment could be smaller than the amount of interest that accrued that month. Your student loan balance could actually grow over time in this case, even while you’re making consistent payments.
The Department of Education sets limits on how long you must make payments under an income-driven plan to ensure that borrowers aren't in debt forever:
- REPAYE: 20 years if all of your loans were for undergraduate programs, or 25 years if you took out loans for graduate or professional programs
- PAYE: 20 years
- IBR: 20 years if you borrowed after July 1, 2014, or 25 years if you took out loans prior to that date
- ICR: 25 years
Any remaining balance is forgiven at the end of your repayment period. Whether you have any balance left to forgive will depend on the size of your loan and your monthly payments.
Payments and interest on federal student loans have been suspended until Aug. 31, 2022, due to the coronavirus pandemic. This time period will still count as part of your 20 or 25 years of mandatory payments to earn forgiveness. Any forgiven student loan debt will be tax-free through the end of 2025.
How To Get Loan Forgiveness With an Income-Driven Repayment Plan
You must take a few key steps to qualify for loan forgiveness under an income-driven plan:
- Submit an application for an income-driven plan through StudentAid.gov or directly with your loan servicer.
- Provide required information, including your family size and marital status, which is used to determine your eligibility for an income-driven plan and to calculate your monthly payments.
- Make the mandated monthly payments for the required number of years.
- Recertify your eligibility and income each year, even if nothing has changed.
This period of deferment counts toward your required number of payments if your loan payments are paused due to economic hardship. Those months also count toward your required repayment time if your payment is set to $0 for some months based on your available income.
The PAYE plan is specifically designed for new borrowers. You can’t have had an outstanding Direct or Federal Family Education Loan when you received a new loan after Oct. 1, 2007. You must also have received a Direct Loan disbursement after Oct. 1, 2011.
What Can Disqualify My Loan for Forgiveness?
You must recertify your eligibility and income every year when you're on an income-driven plan. The consequences for not doing so vary per plan. You’ll be removed and placed on an alternative plan if you’re on the REPAYE plan. Your monthly payment will increase to the amount you would owe under a standard 10-year repayment plan if you’re on the PAYE, IBR, or ICR plans.
Failure to recertify also means that any unpaid interest will be added to your loan balance. This process is called capitalization. You’ll pay interest on this new higher principal going forward, increasing the total cost of your loan over time.
Leaving (or being removed from) an income-driven repayment program also means that your payment could increase substantially, and you would no longer be eligible for forgiveness unless you rejoined an income-driven program.
You might qualify for forgiveness of any remaining loan balance after 10 years of payments on an income-driven repayment plan if you're also working toward forgiveness under the Public Service Loan Forgiveness (PSLF) Program.
The Department of Education made some significant changes to this program in October 2021, allowing borrowers to count all payments made on Federal Family Education Loans (FFEL) or Perkins Loans, but you must submit an application to the DOE no later than Oct. 31, 2022.
Income-Driven vs. Public Service Loan Forgiveness
Public Service Loan Forgiveness is an alternative to forgiveness under an income-driven plan. It’s similar in some ways, but there are key differences.
|Income-Driven Forgiveness||Public Service Loan Forgiveness|
|Eligible types of loans||Direct Subsidized and Unsubsidized Loans PLUS Loans for graduate and professional students Consolidated Federal Family Education Loans or Perkins Loans Parent PLUS Loans that have been consolidated into a Direct Consolidation Loan (ICR Only)||Direct Loans Federal Family Education Loans and Federal Perkins Loans that have been consolidated into a Direct Consolidation Loan|
|Repayment plan||Any income-driven repayment plan||Any income-driven repayment plan|
|Job-related requirement||None||Working full time in an eligible public service organization: Government School district Nonprofit Public hospital|
|Timeline for forgiveness||20 to 25 years of repayment, based on your plan||120 qualifying payments|
You can get your loans forgiven in half the time (or less), as compared to forgiveness based on participating in an income-driven plan, if you remain eligible for Public Service Loan Forgiveness. The payments you made while on your income-driven plan will count toward income-driven forgiveness if you don't remain eligible for PSLF, perhaps because you moved from working for a local government to the private sector.
Federal Student Aid. "Repayment Plans."
Consumer Financial Protection Bureau. "When You Make Student Loan Payments on an Income-Driven Plan, You Might Be in for a Payment Shock."
Federal Student Aid. "Income-Driven Repayment Plans."
Congress.gov. "The American Rescue Plan Act," Pages 182-183.
U.S. Department of Education. "U.S. Department of Education Announces Transformational Changes to the Public Service Loan Forgiveness Program, Will Put Over 550,000 Public Service Workers Closer to Loan Forgiveness."
Federal Student Aid. "Student Loan Forgiveness (and Other Ways the Government Can Help You Repay Your Loans)."