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What should I know about federal student loans and income-driven repayment plans?

What is it? An income-driven repayment plan ties your monthly federal student loan payment to your income. It helps ensure that you’re only being charged an amount that you can afford. For some people, the monthly payments are $0.

Why should I do it? It’s important to enroll in an income-driven repayment plan if you’re having trouble keeping up with your federal student loan payments. The plans help you avoid falling behind or going into default. Going into default generally means that you have not made a payment in more than 270 days. If this happens, your wages may be garnished without a court order. You could lose out on your tax refund or Social Security check. Your credit score could suffer.

Am I eligible? If you have a federal student loan, you are likely eligible. One major exception is if you have Parent PLUS loans (in which case you will want to talk to an expert for individualized advice on how to enroll for an income-driven repayment plan). A Parent PLUS loan is a student loan taken out by a parent to finance their child’s education. If you have private student loans (loans offered by the school, a bank, or other financial institution and not backed by the federal government) you are not eligible for the federal income-driven repayment plans. If you have private loans, you will need to contact your specific lender to see if they offer any options as to those specific loans.

How do I apply? In less than 10 minutes, you can enroll! We have a step-by-step guide that is available here. Broadly, you’ll need to take two steps:

  • Choose your plan. As shown below, there are currently four possible plans that you can choose from. Each plan is slightly different, and they are in the process of changing. The new SAVE Plan is going to be the primary option for most borrowers. When you apply, you can also check a box that tells your loan servicer to choose the plan with the lowest monthly payment. Your loan servicer is the Company that you interact with regarding your student loans. They’re the company that collects the payments from you (examples include Navient or Great Lakes).
  • You can apply on-line at Alternatively, you can send a physical copy of the application to your loan servicer. Once you’re enrolled, you’ll need to verify your income each year. If you want to re-verify your income on-line, you can do so at the same website above. If you want to re-verify your income on paper, then you will need to work with your loan servicer to do so.

What are the different plans? There are currently four different plans, each with slightly different terms and conditions. Generally speaking:

  • SAVE Plan (formerly REPAYE): Most direct loan borrowers are eligible for this option. A direct loan borrower is someone who borrowed a loan directly from the federal government (rather than a loan borrowed from a bank or financial institution that is then backed by the federal government). The SAVE Plan requires a monthly payment of between 5-10% of your “discretionary income” (money you have left over from your post-tax income after paying for necessary expenses like rent, utilities, and food), depending on whether it is an undergraduate or graduate student loan. If you make payments under this plan, the Department of Education will cover any excess monthly interest that your payment does not cover (and it will therefore limit your overall balance from growing). There’s no cap on what you could pay. Depending on the amount of student debt you initially borrowed, you could have the outstanding balance on your loan forgiven by the government within 10-25 years.
  • PAYE: If you are a direct loan borrower and took out your loan after July 1, 2014, you are eligible for this plan. It requires a monthly payment of 10% of your discretionary income. You will never pay more than what you would pay in a standard repayment plan. Loan forgiveness occurs at the 20-year mark. New borrowers will not be able to enroll in this plan after July 2024.
  • IBR: This plan is open to most borrowers and requires a monthly payment of between 10-15% of your discretionary income. It is also capped, and loan forgiveness occurs after 20-25 years.
  • ICR: This plan is open to most direct loan borrowers and charges 20% of any earnings above the federal poverty level. Loan forgiveness occurs at the 25-year mark. After July 2024, new enrollment in ICR will not be available except for borrowers with consolidated Parent PLUS loans.

Note: The plans handle interest on the loans slightly differently. If you think you might leave the plan down the road, you should read more on how interest works under each plan. And, if you’re married, you should also look at how your spouse’s income will be treated under each plan. Finally, if any part of your loan is forgiven after 20-25 years, you may be required to pay income tax on that amount.

What if I consolidated my loans or plan to consolidate them? If you only have federal loans, then consolidation could impact the type of IDR plan you’re eligible for. If you consolidate a private loan with a federal loan, you would be doing so with a private lender and would lose your eligibility for a federal IDR plans.

What if I have more questions? If you have questions about what type of loans you have, how to apply, or which plan is right for you, you should contact your loan servicer or call the Federal Student Aid Ombudsman Group at the Department of Education at 1-877-557-2575. You can also book an appointment with an advisor at College Now Greater Cleveland. Their website is:

Updated September 12, 2023

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