Income-Driven Repayment Plans
What to know about Income-Driven Repayment Plans
Income-driven repayment plans may offer lower payments because they are based on your income and family size. Payments can be as low as $0
per month, depending on your circumstances.
The following plans are considered Income-Driven Repayment (IDR):
Revised Pay As You Earn (REPAYE)
Pay As You Earn (PAYE)
Income-Based Repayment (IBR)
Income-Contingent Repayment (ICR)
These repayment plans are unique:
Eligibility - Based on income, family size, your loan balance(s) and the types of federal student loans you have.
Annual Renewal - Even if your income or family size is the same you are still required to renew your IDR plan annually.
Annual Proof of Income - Income documentation must be provided with your annual renewal.
Loan forgiveness opportunity - After you make 20-25 years of qualifying payments, your remaining loan balance(s) may be forgiven.
These repayment plans also work for Public Service Loan Forgiveness.
Interest subsidy - REPAYE, IBR and PAYE offer interest subsidies for some or all of your loans.
Interest Subsidies (Paid by the Government):
The government will pay the interest that is not satisfied by your calculated IDR monthly payment. The % paid by the government depends on the length of
time in the plan and the plan and loan type.
Learn more about Income-Driven Repayment Plans
The Department of Education has
additional information about the repayment plans and
the eligibility requirements for each.
Parent PLUS Loans do not qualify for IDR Plans. Borrowers with Parent PLUS loans may consolidate and request ICR.
If your consolidation loan was disbursed on or prior to 7/1/2006 and the consolidation loan includes Parent PLUS loans, your consolidation loan may not be
eligible for IDR Plans. FAQs about income-driven repayment plans are also available.
Importance of Annual Renewal of Income-Driven Repayment (IDR)
When it is time to renew, you will be sent notification. A new IDR application to re-certify your income and family size and applicable income documentation will
be required for renewal. Even if your information has not changed, you are still required to complete the annual renewal to retain a calculated IDR monthly payment
amount based on income and/or family size. If the annual renewal is not received timely your monthly payment amount may substantially increase and unpaid interest
may be capitalized (added to the principal balance of your loan(s)).
What will happen if I don't renew IDR by the annual deadline?
It’s important for you to complete a new IDR application and provided applicable income documentation to re-certify your income and family size by the
specified annual renewal deadline. If you don’t renew by the deadline, the consequences vary depending on the plan.
Under the REPAYE Plan, if you don’t renew by the annual deadline, you’ll be removed from the REPAYE Plan and placed on an Alternative Repayment Plan.
Under this Alternative Repayment Plan, your required monthly payment is no longer based on your income and family size which may substantially increase
your monthly payment amount. Instead, your monthly payment will be the amount necessary to repay your loan(s) in full by the earlier of 10 years from
the date you begin repaying under the Alternative Repayment Plan, or the ending date of your 20- or 25-year REPAYE Plan repayment period. You may choose
to leave the Alternative Repayment Plan and repay under any other repayment plan for which you are eligible. Payments on the REPAYE Alternative Repayment
Plan do not count toward Public Service Loan Forgiveness.
Under the PAYE Plan, the IBR Plan, or the ICR Plan, if you don’t renew by the annual deadline,
you’ll remain on the same income-driven repayment plan, however your monthly payment will no longer be based on your income which may substantially
increase your monthly payment amount. Instead, your required monthly payment amount will be the amount you would pay under a Standard Repayment Plan
with a 10-year repayment period, based on the loan amount you owed when you initially entered the IDR plan. You may return to making payments based
on income if you complete a new IDR application and provide the applicable income documentation.
In addition to the consequences described above, if you don’t renew by the annual deadline under the REPAYE, PAYE, and IBR plans, any unpaid interest will
be capitalized (added to the principal balance of your loans). This may increase the total cost of your loans over time, because you will then pay interest
based on the increased principal balance.
If I’m removed from the REPAYE Plan because I didn’t renew by the annual deadline, is it possible to return to the REPAYE Plan?
You can return to the REPAYE Plan only if you provide MOHELA with an IDR application and include documentation of your income for the period
when you were not on the REPAYE Plan. Depending on how long it has been since you were removed from REPAYE, you may need to provide income
documentation for the past year or several prior years may be required.
During the gap in the REPAYE plan, MOHELA will calculate what your monthly payment amount would have been under the REPAYE Plan compared to the monthly
payment amount under the Alternative Repayment Plan (or any other plan) for the same period. If the monthly payment amount under the REPAYE Plan would
have been more than it was under the Alternative Repayment Plan or another plan during this period, your new REPAYE monthly payment amount will be increased.
The amount of the increase will equal the difference between what you were required to pay during the period when you were not on the REPAYE Plan, and the
amount you would have been required to pay if you had remained on the REPAYE Plan, divided by the number of months remaining in your 20- or 25-year repayment period.
You received loans for undergraduate study and begin repaying those loans under the REPAYE Plan when they first enter repayment. Because all of the loans you
are repaying under REPAYE were received for undergraduate study, your repayment period is set at 20 years.
After your first year of repayment under the REPAYE Plan, you do not renew.
Starting with year 2 of repayment, you are placed on the Alternative Repayment Plan. Your repayment period is set at 10 years, because 10 years is less time
than the remaining portion (19 years) of your REPAYE Plan repayment period.
Your payment amount under the Alternative Repayment Plan is $200 per month, and you pay this amount for 12 months.
You decide to reenter REPAYE and provide the necessary documentation to your loan servicer. Your loan servicer determines that your REPAYE payment
amount for the past year would have been $300 per month.
You paid $1,200 less over the course of the year under the Alternative Repayment Plan than you would have paid during the same period under the REPAYE Plan.
When you reenter REPAYE, you will have 18 years of your repayment period remaining, so the $1,200 is divided by 216 (there are 216 months in 18 years), which
equals $5.55 per month. This amount will be added to your payment amount each month that you remain in REPAYE.
Your payment amount under REPAYE for the upcoming year (based on newer income documentation) will be $150 per month.
After the increase is added in, your total REPAYE payment will be $155.55 per month for the next year.