Income Driven Repayment

Under an Income Driven Repayment Plan, a borrower’s payment amount is based on calculated disposable income considering family size and household income. For those who are in a very low income situation, the amount due for payments can be zero. There are several different types of Income Driven Repayment Plans. These are the Revised Pay as You Earn Repayment Plan (REPAYE Plan), Pay as your Earn Repayment Plan (RAYE Plan), Income Based Repayment Plan (IBR Plan), and Income Contingent Repayment Plan (ICR Plan).

An Income Driven Repayment Plan reduces what is owed monthly by a borrower and extends the time for repayment. If, at the end of the designated repayment period, there is a remaining balance on the loan, that remaining balance is forgiven. Each of the different specific programs have their own repayment period and monthly payment determinations.

Revised Pay as You Earn Repayment Plan: A borrower with a Direct Student Loan, Direct PLUS Loan for graduate or professional studies, a Direct Consolidation Loan that is not part of any PLUS loan by parents, or, provided they are consolidated into a Direct Loan, a Federal Family Educational Loan Program loan or a Federal Perkins Loan, may repay under the Revised Pay as You Earn Repayment Plan. Under the Revised Pay as you Earn Repayment Program, payments are 10% of the determined discretionary income. If this plan is for the repayment of a loan used only for undergraduate education the repayment period is 20 years. If any loan the borrower is repaying under the plan was to receive a graduate or professional education the repayment period is 25 years. At the end of the 20 or 25 year period, as applicable, as long as all payments were made as required, any remaining balance is forgiven and the loan is discharged.

Pay as You Earn Repayment Plan: A borrower with a Direct Student Loan, Direct PLUS Loan for graduate or professional studies, a Direct Consolidation Loan that is not part of any PLUS loan by parents, or, provided they are consolidated into a Direct Loan, a Federal Family Educational Loan Program loan or, provided it is consolidated into a Direct Federal Loan, a Federal Perkins Loan, may repay under the Pay as You Earn Repayment Plan. Under a Pay as You Earn Repayment Plan, the payment amounts are generally 10% of the borrower’s discretionary income, but not more than the amount would be under the Standard Repayment Plan. The repayment period for the Pay as You Earn Repayment Plan is 20 years and at the end of the repayment period the remaining balance, if any, is forgiven.

Income Based Repayment Plan: A borrower with a Direct Student Loan, Direct PLUS Loan for graduate or professional studies, a Direct Consolidation Loan that is not part of any PLUS loan by parents, a Federal Family Educational Loan Program loan, or a Federal Perkins Loan, may repay under the Income Based Repayment Plan. Under the Income Based Repayment Plan, if the borrower has a new loan on or after July 1, 2014 the amount due per month is generally 10% of the borrower’s discretionary income but not more than what would be due under the Standard Repayment Plan. If the borrower’s loan is already existing as of July 1, 2014 the amount due to generally 15% of the borrower’s disposable income but now more than what would be due under the Standard Repayment Plan. The repayment period under the Income Based Repayment Plan if the loan was new on or after July 1, 2014 is 20 years, if the loan was not new on July 1, 2014 the repayment period is 25 years. Under both, at the end of the repayment period, any remaining balance is forgiven.

Income Contingent Repayment Plan: A borrower with a Direct Student Loan, Direct PLUS Loan for graduate or professional studies, a Direct Consolidation Loan including PLUS loan by parents, and, provided it is consolidated into a Direct Federal Loan, a Federal Family Educational Loan Program loan including PLUS Loans made to parents, or a Federal Perkins Loan, may repay under the Income Contingent Repayment Plan. Under the Income Contingent Repayment Plan, the payment amount due is either 20% of the borrower’s discretionary income or what would be due under a fixed payment plan over 12 years adjusted according to the borrower’s income, whichever is less. The repayment period under the Income Contingent Repayment Plan is 25 years with the remaining balance as the end of the repayment period forgiven.

Those under any Income Driven Repayment Program can qualify for earlier forgiveness under the Public Service Loan Forgiveness Program if the requirements under that program are also met while remaining current on due payments under the Income Driven Repayment Program. If the borrower qualifies under all the requirements for the Public Service Loan Forgiveness Program, the loan can be forgiven in 10 years instead of the 20 to 25 years of the repayment period.

The determination of the borrower’s disposable income for calculating the payment amount and repayment plan eligibility, the borrower’s adjusted gross income of alternative documentation of income is used. This must be provided when submitting the request for an Income Driven Repayment Plan.

The borrower’s adjusted gross income will be used if the borrower filed a federal income tax return in the last two years and the borrower’s current income isn’t significantly different from the income reported on the borrower’s most current federal income tax return. The borrower’s adjusted gross income can be provided by either applying using the online Income Driven Repayment Plan Request and use the IRS Data Retrieval Tool during the application to retrieve the information from the federal income tax return, or by including a paper copy of the borrower’s most recently filed federal income tax return or IRS tax return transcript along with the paper Income Driven Repayment Plan Request.

If the borrower has not filed a federal income tax return in the past two years, or the borrower’s current income in significantly different from the borrower’s reported income in the latest federal tax return alternative documentation can be used to determine eligibility and payment amounts. This can be by providing pay stubs or other documentation of income with a paper Income Driven Repayment Plan Request if the borrower received taxable income, or indicting on the request that the borrower has no taxable income.

Every year, a borrower who is on an Income Driven Repayment Program must recertify their income and family size every year. If there is a significant change in either income or family size the borrower can report this before the recertification date and have their payment amount re-determined ahead of the annual renewal date. This is d