Income-Driven Repayment Plans Explained: SAVE, IBR, PAYE, and ICR

What Is Income-Driven Repayment?

Income-driven repayment (IDR) plans cap your federal student loan payment at a percentage of your discretionary income — and forgive any remaining balance after 20 or 25 years. For millions of borrowers, IDR plans make repayment manageable when the standard 10-year plan payment would strain their budget.

There are four IDR plans available for federal Direct Loans: SAVE, IBR, PAYE, and ICR. Choosing the right one depends on your loan type, when you borrowed, your income, your family size, and your career plans.

SAVE Plan (Saving on a Valuable Education)

SAVE is the newest and most generous IDR plan, introduced in 2023. It replaced the REPAYE plan.

• Payment: 5% of discretionary income for undergrad loans; 10% for grad loans; blended rate for borrowers with both
• Discretionary income definition: Income above 225% of the federal poverty line (vs. 150% for other plans) — this significantly lowers payments
• Forgiveness: After 10 years for borrowers with original balances ≤$12,000; 20 years for undergrad loans; 25 years for grad loans
• Interest benefit: If your payment doesn't cover monthly interest, the government waives the unpaid interest — your balance never grows
• Best for: Borrowers with low-to-moderate incomes seeking the lowest monthly payment; those pursuing PSLF

Note: SAVE has faced legal challenges as of 2025. Check studentaid.gov for current status before enrolling.

IBR Plan (Income-Based Repayment)

IBR has two versions based on when you first borrowed:

• New IBR (first borrowed after July 1, 2014): 10% of discretionary income; forgiveness after 20 years
• Old IBR (first borrowed before July 1, 2014): 15% of discretionary income; forgiveness after 25 years
• Discretionary income definition: Income above 150% of the federal poverty line
• Eligibility: Must demonstrate partial financial hardship (payment under IBR must be lower than the standard 10-year payment)
• Best for: Borrowers who don't qualify for SAVE (e.g., FFEL loan holders not eligible for SAVE) or as a backup if SAVE is legally suspended

PAYE Plan (Pay As You Earn)

• Payment: 10% of discretionary income, never more than the standard 10-year payment
• Discretionary income definition: Income above 150% of the federal poverty line
• Forgiveness: After 20 years
• Eligibility: Must be a new borrower as of October 1, 2007, AND have received a disbursement on or after October 1, 2011
• Best for: Older borrowers who took loans before SAVE existed and have moderate debt relative to income

ICR Plan (Income-Contingent Repayment)

• Payment: The lesser of 20% of discretionary income OR what you'd pay on a 12-year fixed plan adjusted to your income
• Discretionary income definition: Income above 100% of the federal poverty line (most restrictive definition)
• Forgiveness: After 25 years
• Best for: Parent PLUS loan borrowers (the only IDR plan available after consolidating PLUS loans); grad students who don't qualify for other plans

How to Choose the Right Plan

Use the Federal Student Aid Loan Simulator at studentaid.gov/loan-simulator — it compares your actual payment and total interest under every plan based on your real loan data.

General guidance:

• If you qualify for SAVE and it's legally available: usually the best choice for low-income borrowers
• If pursuing PSLF: any IDR plan qualifies, but lowest-payment plans minimize what you pay before forgiveness
• If you expect high income growth: a shorter forgiveness timeline or standard repayment may cost less total
• If you have Parent PLUS loans: consolidate and enroll in ICR (the only eligible IDR plan)

Enrolling in an IDR Plan

1. Go to studentaid.gov and log in with your FSA ID
2. Navigate to "Manage Loans" → "Repayment Plans"
3. Select your preferred plan and submit income documentation (most use IRS data transfer, but you can manually upload a paystub)
4. Recertify annually — your payment adjusts each year based on updated income and family size

Forgiveness Is Taxable — Plan Ahead

Under current law, forgiveness from IDR plans (not PSLF) is treated as taxable income in the year it occurs. If you have $80,000 forgiven after 20 years, you could owe significant federal and state income taxes in that year. Through 2025, IDR forgiveness is temporarily exempt from federal tax; the long-term tax treatment may change. Work with a tax advisor before banking on forgiveness as your primary repayment strategy.