Federal Direct Loan Repayment Options

Federal Direct Loans (DL) have the most options for repayment. Below is a summary of these plans.  You can see what your payment would be under each plan by using this calculator.  The feds also have a calculator which you can find here.

Income Driven Plan Details

There are five income-driven repayment (IDR) plans: IBR (Income Based Repayment), New IBR, ICR (Income Contingent Repayment), PAYE (Pay As You Earn), and REPAYE/SAVE (Revised Pay As You Earn).  Which ones you are eligible for depends on what kind of federal student loans you have, your income, and when you got your loans.  You can try to see what your payments will be using our calculator:  https://studentloanplans.app or the Dept. of Education website: https://studentaid.gov/loan-simulator/, or you can ask your servicer.  Note that effective July 10, 2023 neither of these calculators have been updated with the new SAVE provisions.

There are two primary federal loan programs.  Federal Family Education Loans (FFEL) and Direct Loans (DL).  FFEL loans are not eligible for the majority of these IDR plans but can be made eligible by consolidating them into the DL program.  In most cases, consolidation will reset any forgiveness counts you may have already accrued so research this carefully before taking any action.  Perkins loans can also be consolidated into the DL program to access these plans.  No other loans, including private or state loans, can ever be made eligible for IDR plans.

If your income is high compared to your loan balance, the non-income related repayment plans such as the extended, graduated and standard consolidation plans might be a better fit for your situation.  The calculators linked above will also give you the estimated payment amounts on these plans.  Remember, the name of the game is paying the least amount over time and depending on your balance and income, that may mean paying your loans as aggressively as possible rather that pursuing loan forgiveness under these income driven plans.

ELIGIBILITY REQUIREMENTS:

Old IBR – FFEL borrowers regardless of when they got the loans and Direct Loan borrowers who are not new borrowers on/after July 1, 2014. If your loan was disbursed prior to July 1, 2014, you are not a new borrower on/after July 1, 2014. Borrower must also have a partial financial hardship (see below for information on partial financial hardships). You can find your loan disbursement date on www.studentaid.gov, the Department of Education website or on your loan servicers website. If you have outstanding federal student loans, you can create an account to get your loan information.  Effective July 1, 2024, defaulted borrowers will also be eligible for this plan.

New IBR – Direct Loan borrowers who are new borrowers on/after July 1, 2014. Borrower must also have a partial financial hardship. You are a new borrower on/after July 1, 2014, if all of your loans were disbursed on or after July 1, 2014. Consolidating loans made prior to July 1, 2014 does not make you a new borrower. Effective July 1, 2024, defaulted borrowers will also be eligible for this plan.

ICR – Direct Loan borrowers regardless of when loan was received. If you have FFEL loans, you must consolidate into a Direct Consolidation loan to be eligible for this plan. This is no partial financial hardship requirement. This is the only IDR plan available to Parent Plus borrowers and they must transfer their Parent PLUS loans (whether they are Direct or FFEL) into a Direct Consolidation Loan to be eligible.

NOTE: The ICR plan is being sunsetted except for consolidated PP. If you aren’t enrolled in that plan on July 1, 2024 you never can. If you are and then change plans after that date you can never go back. To repeat – this sunset doesn’t apply to Parent Plus – ICR will still be available indefinitely for consolidated PP loans.

 

PAYE – Direct Loan Borrowers who were new borrowers on/after October 1, 2007 and received a Direct Loan disbursement on/after Oct. 1, 2011. FFEL borrowers who were new borrowers on/after October 1, 2007, may qualify by consolidating their FFEL loans into a Direct Consolidation Loan. Borrowers must also have a partial financial hardship. Note: The PAYE plan is being sunsetted. If you aren’t enrolled in that plan on July 1, 2024 you never can. If you are and then change plans after that date you can never go back

REPAYE/SAVE – Direct Loan Borrowers regardless of when they got the loans. No partial financial hardship requirement. NOTE: If as of July 1, 2024 you’ve made sixty or more payments under repaye you may not switch to the IBR plan. This is to prevent borrowers with graduate loans to be able to game the system and get forgiveness sooner

 

 

HOW TO CALCULATE MONTLY PAYMENT AMOUNT FOR INCOME DRIVEN REPAYMENT PLANS:

 

Plans that require a partial financial hardship: IBR (old and new versions) and PAYE plans.

 

A partial financial hardship is when your IDR payment amount is less than what you would have paid under a ten-year standard repayment plan.

A partial financial hardship is determined as follows:

1. Use the link below to find the poverty level for your family size based on the state where you live. Multiply that amount by 1.5 (150% of the poverty level). Your family size includes both spouses and dependents. The poverty level is the same for the lower 48 states. Alaska and Hawaii have different levels. https://aspe.hhs.gov/prior-hhs-poverty-guidelines-and-federal-register-references

Subtract the 150% of the poverty level amount from the Adjusted Gross Income you reported on your most recent federal tax return. This is your “discretionary income.” Multiply your discretionary income by 10% (.10) for New IBR and the PAYE plans. For the Old IBR plan, multiply your discretionary income by 15% (.15). This is the total amount you will pay on your loan over a year. Divide that amount by 12 for your monthly payment amount.

2. If the IDR payment amount is less than what your payment would be under the 10-year standard plan, then you have a partial financial hardship.

When you are on an IDR plan that requires a partial financial hardship (PFH) and your income increases enough that you no longer have a PFH, you can remain on the plan, however, your payments will be adjusted to repay the balance you owed when you started on the plan within 10 years. If that payment is too high check to see whether there is another payment plan not based on income that can give you lower payments. If you’ve never consolidated your loans, you might have a lower payment by consolidating and going on the standard plan for consolidation loans that has terms up to 30 years depending on the loan balance. The standard plan doesn’t offer any forgiveness.

 

Plans that don’t require a Partial Financial Hardship: ICR and REPAYE/SAVE:

For the ICR plan payments are the lesser of 20% of Discretionary Income or the payment amount you would have under the 12-year standard payment multiplied by an Income Percentage Factor. Your discretionary income is the amount by which the Adjusted Gross Income (AGI) on your federal tax return exceeds 100% of the applicable poverty Guideline. Your discretionary income is multiplied by .20 which gives you the total you would pay in payments over a year. Divide by 12 to get the amount of your monthly payment. The Income Percentage Factor is an amount published annually by the U.S. Dept of Education that is used to calculate your IDR payment. It’s based on your annual income.  https://www.federalregister.gov/documents/2021/04/14/2021-07605/annual-updates-to-the-income-contingent-repayment-icr-plan-formula-for-2021-william-d-ford-federal

For the REPAYE plan, discretionary income is the amount by which the AGI on your federal tax return exceeds 225% (effective July 30, 2023) of the Poverty Guideline. Your discretionary income is then multiplied by .10 (for graduate loans, or consolidation loans that contain loans other than undergraduate Stafford loans) or .05 (for undergraduate loans or consolidation loans made up of only undergraduate loans) which gives you the total you would pay in payments over a year. Divide by 12 for your monthly payment amount.  If you have both undergraduate Stafford loans and graduate or other loans the percentage will be a weighted average based on the original balance of all of your loans.

Under both ICR and REPAYE/SAVE you could end up with a payment higher than what your payment would be under a ten year standard plan if your income is high compared to your balance.

If your income has decreased since you did your last tax return, you can do the calculation based on your current income. The servicer will ask for proof of your current income.

 

EFFECT OF MARRIAGE ON IDR PLANS

With IDR plans, if you are married and file federal taxes jointly, both spouses’ incomes (and federal student loans) are used to determine whether you have a partial financial hardship. Effective July 30, 2023, borrowers that file their income separately may not count their spouse in their family size.

INTEREST SUBSIDY ON SOME IDR PLANS

There is an interest rate subsidy for some IDR plans if negative amortization occurs (this happens when the payment amount doesn’t cover all the interest due). Payments are always applied to interest before being applied to principal.

For the Old IBR, New IBR, and PAYE payment plans there is an interest subsidy for subsidized loans for the first 3 years on the plan of 100% of the difference between the monthly payment and the monthly accruing interest. There is no interest subsidy for unsubsidized loans.  Paying more than what your monthly payment is will not negatively affect your interest subsidy eligibility.

The REPAYE/SAVE has the most generous interest subsidy. For REPAYE, subsidized loans have a subsidy of 100% of the difference between the monthly payment and the monthly accruing interest for the first 3 years on the plan and 50% thereafter. For unsubsidized loans, there is a subsidy of 50% of the difference between the monthly payment and monthly accruing interest.  Effective July 30, 2023, all interest on all loans under the REPAYE/SAVE plan in excess of the borrowers calculated payment is waived.  There is no time limit to this new interest subsidy.

Periods where your loan was under an economic hardship deferment (not a forbearance) will count against the three year interest subsidy on all of the IDR plans.  You do not get a new three year period of subsidy by switching plans.

 

 

TIME TO FORGIVENESS

For IBR and ICR it takes 300 qualifying payments (at least 25 years), for New IBR and PAYE it takes 240 qualifying payments (at least 20 years). For REPAYE/SAVE it takes 240 qualifying payments (at least 20 years) for undergrad loans and 300 qualifying payments ( at least 25 years) if you have any loans for graduate school.

Effective July 1, 2024:

Under SAVE, forgiveness occurs after 300 months on the plan if the borrower has any graduate loans or parent plus loans, even if consolidated.

Under SAVE forgiveness occurs after 240 months on the plan for undergraduate loans and consolidation loans that contain undergraduate loans.  To receive forgiveness in 20 years under SAVE the borrower cannot have any graduate loans at all.

A qualifying payment is a payment in the full amount due within 15 days of the payment due date.

We advise borrowers to look at what they would pay over time and choose an affordable payment plan that will result in paying the lowest total amount over time. We have a calculator on our website that can help https://studentloanplans.app. You can ask your servicer for help or if you have Direct Loans only you can use the Student Aid website: Dept. of Ed calculator: https://studentaid.gov/loan-simulator/

 

ANNUAL CERTIFICATION REQUIREMENT

 

All IDR plans require borrowers to certify their incomes and family size each year. Your servicer will contact you each year when it is time for you to certify your income and family size and ask for documentation of both.

If your income decreases during the year or your family size increases, you can ask for a payment recalculation to be done at that time based on your lower current income or increased family size.  If your income increases during the year, it’s not necessary to notify your servicer.

FAILURE TO RECERTIFY INCOME/FAMILY SIZE

If you fail to re-certify your income and family size and are on the IBR, New IBR, or PAYE plan, you can remain on the plan, but your payment amount will be adjusted to repay the balance you owed when you went on the IDR plan based on a 10-year term. If you were on the REPAYE plan, you will be removed from the plan and your payments will be based on the balance at that time, amortized over the reminder of the 20- or 25-year forgiveness period or the next 10 years, whichever is less and there will be no forgiveness. For the ICR plan, you will be removed from the plan and your payments will be recalculated to pay off the balance in 10 years from the time you

If you want to return to making payments under an IDR plan after failing to recertify, you can reapply for an IDR plan and provide information on your income. For REPAYE plans, however, the process is a bit more involved as the Department of Education explains in its Q&As on Income Driven Repayment Plans.

You can return to the REPAYE Plan only if you provide your servicer with documentation of your income for the period when you were not on the REPAYE Plan. Depending on how long it has been since you left or were removed from REPAYE, this could be the same income documentation (such as your most recent tax return) that you would normally submit to enter REPAYE, or it could be income documentation from prior years.

Your servicer will then calculate what your monthly payment amount would have been under the REPAYE Plan during that period and will compare this amount to your monthly payment amount under the alternative repayment plan (or any other plan) over the same period.

If the amount you would have been required to pay under the REPAYE Plan is more than what your monthly payment amount was under the alternative plan or another plan during this period, your new REPAYE Plan payment amount will be increased. The amount of the increase will be equal to 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.

 

INTEREST CAPITALIZATION IN CONNECTION WITH IDR PLANS

 

If you are on the IBR,  and no longer have a partial financial hardship, fail to re-certify your income by the deadline, or choose to leave the IDR plan, the unpaid interest will be added to your principal balance. This is called capitalization.  Effective July 1, 2023 this is the only plan that capitalizes interest in these situations.

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PARENT PLUS LOANS

 

Parent Plus loans, can be either FFEL Parent Plus or Direct Parent Plus.  There is only one IDR plan available to Parent Plus borrowers – the ICR plan. For any Parent Plus borrower to qualify for the ICR plan, the Parent Plus loans, whether they are FFEL or Direct must be consolidated into a Direct Consolidation Loan.  Until July 1, 2025, Parent Plus borrowers can use the “double consolidation loophole” to gain access to other IDR plans.  See the bottom of our consolidation page for more information.

 

OTHER CONSIDERATIONS

Borrowers can change to another payment plan or other IDR plan at any time, but only payments made under an IDR plan or a payment in the amount you would pay under the 10-year standard plan will count toward forgiveness.  If you change from one IDR plan to another, payments under both plans will count toward forgiveness.

When you change from the IBR plan to a different repayment plan, you will first be placed on the Standard Repayment Plan. If you want a repayment plan other than the Standard Repayment Plan, you must make at least one payment under the Standard Plan or one payment under a reduced-payment forbearance before you can switch to another plan.

Loans that are in default are not eligible for any IDR plan, but beginning July 1, 2024 will be eligible for the income based repayment plan only. If the loan is consolidated out of default or rehabilitated and in good standing, it will again be eligible for an IDR plan. Payments made while in default do not count towards forgiveness unless on IBR after July 1, 2024..

You can find additional information about the IDR plans, as well as some valuable FAQ’s here https://studentaid.gov/manage-loans/repayment/plans/income-driven/questions

In April, 2022, the Department of Education announced a one time temporary waiver that may help those pursuing forgiveness under the IDR plans.  You can read about this waiver below.

 

One-time IDR Waiver

Updated as of July 14. 2023

Based on the ED announcement posted here.

The ED announced on July 14th that the first wave of waivers will be processed in August.  Borrowers in this wave should receive an email around July 14th, 2023.  Borrowers not in this batch should expect to see their adjustment done between the fall of 2023 and the fall of 2024.

On April 19^th, 2022, the Department of Education (ED) announced a one-time waiver for how qualifying payments are counted for the income driven plans (IDR) available to federal student loan borrowers.  This includes those with Federal Family Education Loan (FFEL) program loans as well as those with federal Direct Loans (DL).  The waiver applies to Parent Plus , Graduate Plus, Stafford loans and consolidation loans under both programs.

Implementation

 

It appears to say that for those borrowers that the waiver will result in forgiveness under either PSLF or the IDR the adjustment will be done in November. For folks where the adjustment may not result in forgiveness the adjustment will be done starting in the summer of 2024..

 

Who is Eligible

All ED held federal loans, including Parent Plus loans, are eligible for the IDR waiver. Parent Plus loans ARE eligible for the PSLF portion of the IDR waiver. Commercially held FFEL and Perkins are not but can be made eligible by consolidating before December 31, 2023. If you consolidate by that date it will NOT reset your PSLF or IDR forgiveness count. If you already have all ED held loans you do NOT need to consolidate again.  If you consolidate after that date your loans will be given a weighted average for the IDR count.  If they are all Direct Loans they will also be given a weighted average for their PSLF count if consolidated after that date.

For example: if a borrower has 60 qualifying payments on a $20,000 loan and consolidates that loan with another $40,000 in loans with no qualifying payments, then the consolidation loan would be assigned 20 qualifying payments ($20,000 divided by $60,000 times 60).

 

What the IDR Waiver Does

The IDR waiver gives credit toward the 20/25 years needed for forgiveness under the IDR Plans for:

 

• Any month in which a borrower was in a repayment status, regardless of whether payments were partial or late, the loan type, or the repayment plan;

 

• Any month in which loans were in an eligible repayment, deferment, or forbearance status prior to consolidation;

 

• Months while a borrower spent at least 12 months of consecutive forbearance;

 

• Months while a borrower spent at least 36 cumulative months in forbearance; and

 

• Any month spent in deferment (exception for in-school deferment) prior to 2013.

 

It is NOT clear who gets forgiveness after 20 years versus who gets it after 25.

 

The counts will go back to July 1, 1994 under the IDR adjustment.  Remember, for PSLF counts can only go back to October, 2007 and only count if you were also working PSLF eligible employment.

 

It is NOT clear under the waiver what types of forbearance count and which don’t. We can be confident only that “discretionary” forbearance counts which is the kind you have to ask for. It’s possible some of the others will count but I’m not willing to say that as they only mention other forbearance types under the upcoming pslf regulatory changes

 

Dovetail with PSLF

 

Borrowers who have months converted to IDR months under this adjustment can have those months also count for PSLF if they provide proof they were working eligible employment at the time.

Parent Plus Borrower

While Parent Plus (PP) borrowers were excluded from the previous PSLF waiver, they have been included in this one.  And as of January, 2023, the ED has announced that PP loans will also be given PSLF credits for any month deemed an IDR month under this one time adjustment, assuming the borrower was working PSLF eligible employment at the time.  Such borrowers should submit proof of PSLF eligible employment as soon as the adjustment has been made on their account.

While PP borrowers with Direct Loans don’t have to consolidate to get this adjustment, if the waiver won’t give them the 120 (for pslf) or 20/25 years needed for IDR forgiveness, they will need to consolidate before December 31, 2023 to ensure they can get on an income driven plan to accrue the rest of their payments.  Borrowers can consolidate after May 1st, but risk losing their previous PSLF or IDR payment counts by doing so after the deadline.  Remember, PP loans are not eligible for any IDR plans unless consolidated and both PSLF and IDR require payments made under these plans to receive forgiveness under normal rules.

 

Deadline

 

Under this, most of the PSLF waiver has effectively been extended. Borrowers will not be able to double dip for teacher loan forgiveness and will still have to be working for eligible employment at the time they are reviewed for forgiveness as is required under traditional PSLF rules.

If a loan does not have enough months after the one-time waiver is applied, borrowers MUST be under an IDR or ten-year standard plan to accrue additional IDR payments.  Note that for some borrowers this might not be worth it, especially if their income is much higher than their remaining balance and they still have quite a few years left to qualify for IDR forgiveness.  Borrowers can determine their IDR payment amounts by using the loan simulator at www.studentaid.gov  IDR plans include Income Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income Contingent Repayment (ICR).  Note that Parent Plus loans are only eligible for ICR and only if consolidated under the DL program.  Parent Plus loans that have been consolidated more than once can sometimes obtain eligibility for the other IDR plans.

There are still many outstanding questions about this one-time IDR waiver.  We will update this summary and FAQ’s as information becomes available.  You can find our FAQ’s here.

You can view a recording of the webinar we hosted with the ED on the IDR adjustment on March 7th, 2023, here.

Please note if it’s not here we don’t know yet.  You can read the announcement here https://studentaid.gov/announcements-events/idr-account-adjustment

 

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