Income-Driven Repayment Plans

Selecting this repayment option could make your monthly payments affordable if you have high debt, relative to your income.  Monthly payments are based on the borrower's adjusted gross income (AGI), household size, and the federal poverty guideline.

Payments are applied to interest first and principal last, so negative amortization may occur.  Negative amortization is when the amount of your monthly loan payment is less than the amount of interest that accrued on the loan during the billing period.   When this occurs, the unpaid interest may be capitalized (added to the principal balance) if you leave the IBR or PAYE plan (or no longer qualify), which could increase your total debt and the amount you must repay.

The Department of Education's Income-Driven Repayment website may provide useful information to borrowers who are considering the IBR or PAYE repayment option.  Also read Federal Student Aid's Q&A for Income-Driven Repayment Plans for more information.

Income Based Repayment (IBR) for those who are NOT new borrowers on or after 7/1/14

  • All federal educational loans are eligible
  • Payment amount is generally 15% of borrower's discretionary income
  • As a borrower's household income increases, so will the monthly payment amount
  • After 25 years of qualifying payments, loan forgiveness is available (according to current tax code, the forgiven amount is considered taxable income)
  • If a borrower leaves IBR plan (or no longer qualifies), all unpaid interest will be capitalized (added to the principal loan balance)

See our IBR Chart for monthly payment examples.

Pay As You Earn (PAYE) and IBR for NEW borrowers on or after 7/1/14

  • Only Federal Direct Loans are eligible
  • Payment amount is generally 10% of borrower's discretionary income
  • PAYE: must be a new borrower as of 10/1/07 and have received a disbursement on a Direct Loan on or after 10/1/11
  • New IBR: must be a new borrower on or after 7/1/14
  • As a borrower's household income increases, so will the monthly payment amount
  • After 20 years of qualifying payments, loan forgiveness is available (according to current tax code, the forgiven amount is considered taxable income)
  • If a borrower leaves PAYE (or no longer qualifies), the unpaid interest that will be capitalized (added to the principal loan balance) is limited to 10% of the original loan principal balance

See our PAYE Chart for monthly repayment examples.