Income Driven Repayment (IDR)

Income Driven Repayment (IDR) plans are lifesavers for borrowers with high student loan debt relative to their income. Instead of fixed payments that might be unaffordable, IDR caps payments at 10-20% of your discretionary income.

The Four IDR Plans:

1. SAVE Plan (Newest, Best for Most):

• Payment: 5% of discretionary income (undergraduate), 10% (graduate)
• Forgiveness: 20 years (undergraduate), 25 years (graduate)
• Interest subsidy: Government pays unpaid interest if payment doesn't cover it
• Best for: Most borrowers, especially those with high debt-to-income ratios

2. PAYE (Pay As You Earn):

• Payment: 10% of discretionary income
• Forgiveness: 20 years
• Income cap: Must have partial financial hardship
• Best for: High earners who want lower payments

3. IBR (Income-Based Repayment):

• Payment: 10% (new borrowers) or 15% (older borrowers) of discretionary income
• Forgiveness: 20-25 years depending on when you borrowed
• Best for: Older borrowers or those who don't qualify for PAYE

4. ICR (Income Contingent Repayment):

• Payment: 20% of discretionary income OR standard 12-year payment (whichever is lower)
• Forgiveness: 25 years
• Best for: Parent PLUS loan borrowers

Key Definitions:

• Discretionary Income = AGI - 150% of Federal Poverty Guidelines
• Partial Financial Hardship = IDR payment would be less than 10-year standard payment

Major Benefits: ✅ Affordable payments

• Never more than 10-20% of discretionary income ✅ Loan forgiveness
• Remaining balance forgiven after 20-25 years ✅ Interest subsidies
• Government may pay unpaid interest (SAVE plan) ✅ Payment recertification
• Annual income review, payments adjust with income changes

Important Considerations: ❌ Tax bomb

• Forgiven amount may be taxable income ❌ Longer payoff
• Takes 20-25 years vs. 10 years standard ❌ Annual recertification
• Must submit income documentation yearly ❌ Interest accrual
• Unpaid interest may capitalize (except SAVE plan)

Who Should Use IDR:

• High debt-to-income ratio (debt > annual income)
• Low or variable income
• Public service workers (PSLF eligibility)
• Borrowers who want payment flexibility

The Bottom Line: IDR plans make student loans manageable for borrowers with high debt relative to income. The SAVE plan is usually the best option due to its interest subsidy and lower payment percentage. Just remember that forgiven amounts may be taxable, so plan accordingly.