If you have student loans, you’ve probably heard of Public Service Loan Forgiveness. 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. With an income-driven repayment plan, you could be eligible to have your loans forgiven, too.
An income-driven repayment plan allows you to make payments based on your earnings for 20 to 25 years, depending on your plan. At the end of your required payment period, as long as you’ve fulfilled all of the requirements of your program, any remaining balance will be forgiven.
What Is Income-Driven Repayment Plan Forgiveness?
Income-driven repayment plans cap student loan payments at a percentage of your discretionary income—the amount remaining after you deduct taxes, other mandatory charges, and expenditure 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 will never be higher than the monthly payment under the standard 10-year repayment plan.
- Income-Based Repayment (IBR): For borrowers who obtained their first loan after July 1, 2014, payments are capped at 10% of discretionary income and can't exceed the payment amount for the standard repayment plan. For people who borrowed earlier than that date, payments are capped at 15% of discretionary income, but 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.
Because there's a limit on the monthly payment amount, it's possible that your payment could be smaller than the amount of interest accrued that month. Under these circumstances, your student loan balance could actually grow over time, even while you’re making consistent payments. To make sure your plan is helping you pay down your student loans, not making your debt even bigger, consider the pros and cons of different repayment options before choosing one.
To ensure borrowers aren't in debt forever, the Department of Education sets limits on how long you must make payments under an income-driven plan:
- 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
At the end of your repayment period, any remaining balance is forgiven. Whether you have any balance left to forgive will depend on the size of your loan and your monthly payments.
Due to the coronavirus pandemic, payments and interest on federal student loans are suspended through Sept. 30, 2021. This time period will still count as part of your 20 or 25 years of mandatory payments to earn forgiveness.
How To Get Loan Forgiveness With an Income-Driven Repayment Plan
To qualify for loan forgiveness under an income-driven plan, you must follow a few key steps:
- 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 requisite number of years.
- Recertify your eligibility and income each year, even if nothing has changed.
If your loan payments are paused due to economic hardship, this period of deferment counts toward your required number of payments. If your payment is set to $0 for some months based on your available income, those months also count toward your required repayment time.
The PAYE plan is specifically designed for new borrowers. To qualify, 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?
When you’re on an income-driven plan, you must recertify your eligibility and income every year. The consequences for not doing so vary per plan. If you’re on the REPAYE plan, you’ll be removed and placed on an alternative plan. If you’re on the PAYE, IBR, or ICR plans, your monthly payment will increase to the amount you would owe under a standard 10-year repayment plan.
Failure to recertify also means that any unpaid interest will be added to your loan balance, a process called capitalization. Going forward, you’ll pay interest on this new higher principal—increasing the total cost of your loan over time.
Leaving (or being removed from) an income-driven repayment program also means your payment could increase substantially, and you would no longer be eligible for forgiveness unless you rejoined an income-driven program.
Income-Driven Forgiveness 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)
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:
|Timeline for forgiveness||20 to 25 years of repayment, based on your plan||120 qualifying payments|
If you remain eligible for Public Service Loan Forgiveness, you can get your loans forgiven in half the time (or less) compared with forgiveness based on participating in an income-driven plan. If you don't remain eligible for PSLF—for example, if you move from working for a local government to the private sector—the payments you made while on your income-driven plan will count toward income-driven forgiveness.