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 (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.   

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:

IBR – FFEL borrowers regardless of when they got the loans and Direct Loan borrowers who are not new borrowers on/after July 1, 2014. Borrower must also have a partial financial hardship. See explanation of partial financial hardship below. You are not a new borrower on/after July 1, 2014, if you had a loan balance on July 1, 2014 either from an existing loan or because the loan was disbursed on July 1, 2014.

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 on July 1, 2014, you didn’t have an existing loan balance or receive a loan disbursement.

ICR – Direct Loan borrowers regardless of when loan was received (if you have FFEL, you must consolidate into a Direct Consolidation loan to be eligible). No partial financial hardship requirement. Payments are the lesser of 20% of Discretionary Income (see next section below on what Discretionary Income is) or the 12-year standard payment multiplied by an Income Percentage Factor.

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 meet both requirements: no balance on October 1, 2007, and at least one disbursement after October 1, 2011. Borrowers must have a partial financial hardship.  

REPAYE – Direct Loan Borrowers regardless of when they got the loans. No partial financial hardship requirement.

HOW TO CALCULATE PARTIAL FINANCIAL HARDSHIP

A partial financial hardship is determined as follows: Take 150% of the poverty level for a family of your size (if married count you and spouse and count any children) and based on your state (there’s different amounts for Alaska and Hawaii, other states are all the same amount), then subtract that amount from your adjusted gross income which you can find on your most recent tax return. That’s your “discretionary income.” Depending on the IDR plan, you take 10 %, 15% or 20% of that amount to get the total amount you will pay over a year. (15% is used for IBR and 10% for New IBR and PAYE, 20% for ICR). That amount then gets divided by 12 to determine the monthly payment amount. Here’s a link to the poverty levels: https://aspe.hhs.gov/prior-hhs-poverty-guidelines-and-federal-register-references   

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.

If you no longer have a partial financial hardship at the time you recertify your income, you can remain on the IDR plan, but your payments will be calculated based on the amount you would have paid under the 10-year standard plan on the balance you owed when you started on the IDR plan. 

Although ICR and REPAYE do not have a partial financial hardship requirement, they are calculated based on your discretionary income determined in the same way as for a partial financial hardship.  In other words, a percentage factor is applied to your discretionary income. For ICR it’s 20% and for REPAYE it’s 10%.

EFFECT OF MARRIAGE ON IDR PLANS

With IDR plans, if you are married and file taxes jointly, both spouses’ incomes (and federal student loans) are used to calculate the payment amount – the Adjusted Gross Income (AGI) from your tax return. If you file separately, only the borrower’s AGI is used, but there is one exception.  If you live in a community property state and file your taxes as married filing separately your AGI is calculated as half of the total income of both spouse’s.  With the REPAYE plan, it doesn’t matter whether you file taxes jointly or separately, both spouses’ incomes will be used to calculate payments.  

INTEREST SUBSIDY ON SOME IDR PLANS

There is an interest subsidy for some IDR plans if negative amortization occurs (this happens when the payment amount doesn’t cover even the interest due per month). Payments are always applied to interest before being applied to principal. For IBR, PAYE and New IBR there is an interest subsidy for subsidized loans for the first 3 years on the IDR plan of 100% of the difference between the monthly payment and the monthly accruing interest.

For REPAYE, there is an interest subsidy of 50% of the difference between the monthly payment and the monthly accruing. 

For IBR,  New IBR, and PAYE, there is an interest subsidy on subsidized loans for the first 3 years of the IDR plan. The subsidy is 100% of the difference between the monthly payment and the monthly accruing interest.

The REPAYE 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.

TIME TO FORGIVENESS

For IBR and ICR it takes 300 payments (at least 25 years), For New IBR and PAYE it takes 240 payments (at least 20 years). For REPAYE it takes 20 years for undergrad loans and 25 years if you have any loans for graduate school.  You do not need to be on the same plan for the entire required period but only payments made under an IDR or ten-year standard plan count towards the required forgiveness timeframes.  Any IDR payment made on a Direct Loan counts towards Public Service Loan Forgiveness if made while working full time for eligible employment.  See our forgiveness page for more information about PSLF.

What we advise borrowers to do is to look at what they would pay over-time and choose the payment they can afford that will require them to pay 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

If a plan requires a partial financial hardship, the borrower must certify their income and family size each year. requirement 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. You can ask for a payment recalculation anytime your income decreases, or you have an increase in family size.  Otherwise, wait for the annual certification.

If you fail to re-certify your income and are on the IBR, New IBR, ICR or PAYE plan, you can remain on the plan, but your payment will be calculated based on the balance you owed when you went on the IDR plan, your interest rate, and a 10-year term. With REPAYE, 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 you will be removed from the plan.

INTEREST CAPITALIZATION

If you are on the IBR, or New IBR plan, and no longer have a partial financial hardship, fail to re-certify your income, or choose to leave the IDR plan, interest will capitalize.   It will also capitalize if you fail to recertify your income on time or leave the plan for the REPAYE option.

If you are on the ICR plan, unpaid interest in connection with negative amortization is added to your loan balance annually. 

PARENT PLUS LOANS

If you have Parent Plus loans, they can be either FFEL Parent Plus or Direct Parent Plus.  There is only one IDR plan available to Parent Plus borrowers – the ICR plan. But before a Parent Plus borrower can enroll on the ICR plan, the borrower must convert the loans to a Federal Direct Consolidation Loan whether their loans are Direct or FFEL. Do that here: Consolidation Loan Application:  https://studentaid.gov/app/launchConsolidation.action

It is also possible for Parent Plus loans to get eligibility for the other IDR plans, but it is a bit complicated.  If a Parent Plus loan is “double consolidated” it then becomes potentially eligible for the other plans, assuming all other eligibility is covered.  For example, if a borrower has four Parent Plus loans, consolidates two into one consolidation, two into another, separate, consolidation, then consolidates those two consolidations together, that is a double consolidated loan that is then potentially eligible for the other IDR plans.  The final consolidation can be made up of loans other than Parent Plus as well, but the Parent Plus portion has to have been consolidated twice to have the final consolidation be eligible for these other IDR plans.

OTHER CONSIDERATIONS

You 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.  

Loans that are in default are not eligible for any IDR plan. If the loan is consolidated out of default or rehabilitated and in good standing, it will again be eligible for an IDR plan. Default will not reset your IDR forgiveness count unless you consolidate to get out of default.

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

Below is a summary of the information we know as of April 29^th, 2022 regarding this waiver.  We are expecting a significant amount of additional guidance in the coming months.  Keep an eye on  this page for updates, which will be dated.

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.  It is unclear at this time if Parent Plus will need to consolidate to access this waiver.

The waiver, which will be implemented sometime later this year, will give federal student loan borrowers credit for one IDR payment for every month the loan was in a repayment status (other than default) or any deferment status other than an in-school deferment status  if the deferment was in place prior to 2013. Only economic hardship deferments will be counted after 2013.  These credits will count towards the forgiveness component that is part of every IDR plan.  FFEL borrowers will need to consolidate into the DL program via www.studentaid.gov to be given credit for these periods.  DL borrowers do not need to consolidate unless they have loans with multiple periods of repayment in which case they should consolidate so the consolidation loan gets the higher count.  In some cases, periods of forbearance will be counted but the details of how that will be applied are not available yet.

If a loan attains enough payments under the one-time waiver, it will receive forgiveness.  The forgiveness will happen after either 20 years (240 months) or 25 years (300 months).  We are waiting for guidance on which situations will result in forgiveness under which timeline.  It is also unclear how far back these payments will be counted under this one time adjustment.  Our speculation is they will either go back to 1994 when the ICR plan was first available, or 2009 when the first of the other IDR’s were implemented.

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.

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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