Income-driven repayment (IDR) is an umbrella term for several federal repayment plans that all have monthly payments calculated based on your income and family size.
Payments under an IDR plan typically won’t cover the interest on your loan, so your loan balance may go up rather down even though you’re making payments. If you’re working toward forgiveness under income-driven repayment or a program like Public Service Loan Forgiveness, then you can pay less over time and have the remainder of your loan forgiven.
After making payments on an IDR plan for a set amount of time (usually 20 to 25 years), the remainder of your loan balance can be forgiven. The amount forgiven can be taxed as income, unlike forgiveness under Public Service Loan Forgiveness.
If you don’t qualify for forgiveness, or if your income rises enough that you pay off your loan before the forgiveness timeline, you can end up paying more over the life of your loan due to interest.
Not every loan will be eligible for every IDR plan. That will depend on your loan type, when you took out the loan, and whether you meet a “partial financial hardship” requirement as determined by the Department of Education.
Different IDR Plans:
There are a few differences between the IDR plans: they’re based on different percentages of discretionary income, calculated differently, incorporate spouse’s income differently, and have different timelines for forgiveness.
This can be really confusing, but we’re here to help! Summer’s income-driven repayment tool can use your financial situation and loan details to estimate what your monthly payments would be under each plan. You’ll be able to review the comparison before deciding to move forward.
The IDR plans are:
- Pay As You Earn Repayment Plan (PAYE Plan)
- Save on a Valuable Education (SAVE Plan), formerly REPAYE
- Income-Based Repayment Plan (IBR Plan)
- Income-Contingent Repayment Plan (ICR Plan)
All IDR plans need to be recertified annually by providing proof of your income to your loan servicer and the Department of Education.
Even though payments are set to resume on loans in September 2023, the earliest you'd need to recertify your IDR plan is 6 months after the payment pause ends.
There are negative consequences to missing your annual certification deadline for IDR plans. First, your monthly payment due will go back up to the Standard ten-year plan payment amount. Also, the unpaid interest on your loan will capitalize - this means that the interest will be added to the principal balance, and that the interest will begin compounding on the new higher principal.
Switching out of IDR:
You can always decide to switch out of an IDR plan if your priorities or circumstances change. Interest may be capitalized when you leave the plan. Some of the IDR plans have monthly payments that are capped at the Standard ten-year plan amount. That means that you can stay on the IDR plan while making payments in the Standard amount.