There are several repayment options available for federal student loans: traditional plans (standard, graduated, extended) and income-driven plans (income-based repayment (IBR), income-contingent repayment (ICR), pay as you earn (PAYE), and revised pay as you earn (REPAYE)). The plans are not one-time binding decisions, and you can switch plans if your needs or wants change as long as you still meet the eligibility criteria (if any).
If you consolidate at the end of school, you will also choose a repayment plan for the new consolidation loan at that time.
Otherwise, your servicer will contact you 1-2 months before your grace period ends to have you select a repayment plan. If you don’t select anything, you will automatically be placed in the “Standard” plan.
Sample monthly payments for a single resident with a $200k loan at 6% with a $55,000 AGI:
|Repayment Plan||Monthly Payment|
|Revised Pay As You Earn (REPAYE)||$308|
|Pay As You Earn (PAYE)||$308|
|Income-Based Repayment (IBR)||$461|
The “standard” repayment is a 10-year repayment plan and technically the default option, though few residents will use it. If you don’t select one of the other plans before the end of your grace period, you’ll automatically be placed in the standard repayment plan. Monthly payments are set at the beginning of repayment and won’t change. A student graduating with $200k of debt is looking at roughly $2,200/month for the standard repayment (i.e. ain’t going to happen on a resident salary). Under the standard plan, you will pay off your loans after 10 years/120 payments.
While we’ll keep referring to the 10-year Standard, note that for Direct Consolidation loans, the Standard plan is actually extended between 10-30 years depending on your loan amount, with 10 years for loans less than $7,500 and 30 years for amounts greater than $60,000. See: https://studentaid.ed.gov/sa/repay-loans/understand/plans/standard#monthly-payments-consolidation.
The Graduated and Extended Repayment Plans
The graduated and extended plans are older pre-IDR-era plans largely irrelevant to current borrowers. Graduated repayment was designed for those who anticipate steadily increasing income, and monthly payments start low and then gradually increase every two years. The repayment term is generally 10 years, except for consolidation loans, which are stretched out to 30. The extended plan stretches out a stable monthly payment over 25 years. The various IDR programs are basically universally better options and have essentially supplanted both of these programs. You can essentially forget they exist, because if none of the IDR will work for you, then you should probably be on the standard 10-year plan or refinance.
Income-driven Repayment Plans (IDR)
IDR is an umbrella term generally used to refer to the big three: IBR, PAYE, and REPAYE. All of these plans tie your monthly payments to a percentage of your income and are recalculated on an annual basis.
You can apply for an IDR plan toward the end of your grace period or after consolidating your loans (more on that later). Your monthly payment is generally calculated using your tax returns. If your tax returns don’t reflect your current income (e.g. when your taxes reflect you being a broke student but you’re actually a slightly less broke intern), then you can (or may be forced to) use pay stubs or an employment letter/contract to demonstrate income. This ability can be also used to your advantage to reduce your monthly payment if your income decreases.
All IDR plans calculate your monthly payments based on your discretionary income. Your discretionary income is defined as your adjusted gross income minus 150% of the poverty line for your family size and state of residence. Your adjusted gross income (AGI) is your total income (wages, salaries, interest, dividends, etc.) minus “above the line” deductions like pretax retirement contributions. The AGI is reported on your federal income tax return, so you don’t have to try to calculate it yourself. The poverty line depends on family size (and is also higher in Alaska and Hawaii).
In 2017, the federal poverty limits for the lower 48 states:
- $12,060 for individuals
- $16,240 for a family of 2
- $20,420 for a family of 3
- $24,600 for a family of 4
- $28,780 for a family of 5
- $32,960 for a family of 6
- $37,140 for a family of 7
- $41,320 for a family of 8
A single person’s discretionary income in 2017 would be AGI – $18,090 (because 1.5 x 12,060 = 18,090).
Note that any repayment estimator/calculator will calculate your discretionary income from your AGI in order to generate IDR payment examples for you based on the information you provide, but it’s helpful to know if you want to do any hand calculations (and to understand how the whole thing works). As you can see, every person in your family increases the poverty line by about $4,000 and reduces your AGI by about $6,000 (1.5 x $4,000, see IDR equations below).
Your ability to initially qualify for IBR and PAYE depends on if you have a partial financial hardship (PFH). A PFH is when your calculated standard 10-year repayment exceeds 10 or 15% of your discretionary income. Put another way, if your calculated IBR or PAYE payment is less than the 10-year standard, then you have a PFH and qualify. As a quick rule of thumb, your AGI needs to be greater than your student loan balance when you entered repayment for you to not have a PFH (around 130% actually), an uncommon scenario for a resident. You’ll need to submit your income certification annually. Even if your income goes up and you no longer have a PFH, you still stay in your IDR plan as long you as you recertify your income annually.
If you don’t recertify, you don’t get to stay on your current plan: From IBR or PAYE, you’ll get punted to the standard 10-year plan. From REPAYE, you’ll be placed on the “alternative” plan, which is functionally equivalent to the standard for most folks. If you try to switch plans, the greater of your initial repayment balance or your current balance is used for the PFH calculation.
All IDR plans pay 100% of the unpaid interest on subsidized loans (which you might have from your undergraduate days) for three years.
Income-Based Repayment (IBR)
IBR was the original “new” plan back in 2009 and the first plan eligible for PSLF. IBR limits monthly payments to 15% of discretionary income for those with a “partial financial hardship,” and payments are capped at the Standard 10-year amount if income rises sufficiently. Both DIRECT and older FFEL loans qualify (but not Parent PLUS or any consolidation that included a Parent PLUS loan). The government will pay off any unpaid interest on subsidized loans for the first three years. Any remaining loans are forgiven after 25 years of payments (but the forgiven amount is subject to taxes—ouch).
Monthly payment: (AGI – 1.5 x poverty level) x 0.15 / 12 = IBR
IBR for New Borrowers
“IBR for new borrowers” is just essentially an automatic way to phase out the old IBR program in favor of the newer PAYE. IBR for new borrowers (first loan from July 1, 2014, and beyond) changes the old IBR terms to the terms for PAYE, except for the lack of the cap on capitalized interest. There’s really no reason to pick IBR if you are eligible for PAYE; please just pick PAYE.
PAYE is analogous to IBR but with better terms: payments are calculated at 10% of discretionary income for those with a PFH (but again never more than the Standard 10-year amount). Forgiveness timeline is reduced to 20 years. Additionally, any capitalized interest (say after losing your PFH) is limited to 10% of the original principal amount upon entering repayment (potentially limiting a bit of needless suffering). The 3-year subsidized loan interest subsidy is the same.
Why doesn’t everyone do PAYE instead of IBR then? Because PAYE is limited to DIRECT loan borrowers with no loans before October 1, 2007, AND with a new loan after October 1, 2011. Most current students these days do qualify for PAYE.
Monthly payment: (AGI – 1.5 x poverty level) x .10 / 12 = REPAYE or PAYE.
The newest kid on the block, released at the end of 2015: REPAYE was designed to extend the lower payments of PAYE to more borrowers (the IBR crowd) and provide relief from negative amortization while also closing some loopholes to limit costs. Payments are 10% of your discretionary income, period. You don’t need a partial financial hardship to qualify, but the payments are never capped either: they continue to climb as you make money (potentially bad for PSLF, otherwise not necessarily an issue). In addition to the built-in IDR-wide 3-year subsidized loan interest subsidy we discussed previously, REPAYE also pays 50% of the unpaid interest on your unsubsidized loans as well forever starting day 1 (and 50% on your subsidized loans too after three years). Depending on the size of your loans (and the size of your payments), this can be a lot of money, and it effectively lowers your interest rate. In addition to the removal of the payment cap, the “married filing separately” loophole is closed (discussed in the chapter that covers PAYE vs REPAYE), which primarily affects borrowers with high-earning low-debt spouses.
Income-contingent repayment (ICR)
ICR was the original IDR plan, way back in 1993. It’s only relevant for people who need to pay off Parent PLUS loans (PLUS loans made to your parents), which are IBR/PAYE & PSLF ineligible but are ICR-eligible once placed into a Direct Consolidation Loan and were made after July 1, 2006. ICR can be dependent on income or loan amount: payments are the lesser of 20% of discretionary income or whatever amount would be required to pay off the loan over 12 years multiplied by a small “income factor” (which for residents will be around 1; see https://www.federalregister.gov/documents/2016/04/04/2016-07517/annual-updates-to-the-income-contingent-repayment-icr-plan-formula-for-2016-william-d-ford-federal). 25-year forgiveness is available like IBR. Most young people can forget this exists.
Note for parents hoping to get PSLF on their consolidated Parent PLUS loans: it is your work and on-time monthly payments over ten years that matter for PSLF (not the dependent child who actually went to school). Source: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service/questions.
There is a poorly understood loophole for parents hoping to get their Parent PLUS loans into a better repayment plan referred to as “Double Consolidation,” whereby the initial consolidation makes the loans eligible for ICR and then reconsolidating that consolidation loan somehow magically makes the government forget that the original consolidation was for a Parent PLUS loan in the first place. It’s a little extra complicated because you can only consolidate the easy online way once at studentloans.gov.
The idea is that you file two paper applications by writing down your loan numbers from NSLDS by hand (scary!) to create two different consolidation loans with two different servicers and then go online and file for a new Direct consolidation loan combining the original two consolidation loans. Voilà.
Income-sensitive repayment (ISR)
Completely irrelevant. This was originally an ICR alternative for people with old non-DIRECT loans made under the Federal Family Education Loan (FFEL) program, which was replaced and then finally terminated in 2010. IBR essentially replaced ISR entirely. The monthly loan payment was pegged to a fixed percentage of gross monthly income (not adjusted gross income like the other IDR plans), between 4% and 25%, which is chosen by the borrower but must be greater than or equal to the accrued interest. Very unique. Unlike the other plans, you can only be in ISR for up to 5 years.
Unless you’re a nontraditional student who finished undergraduate studies a long time ago, you probably don’t have any FFEL loans (which if you do are—to repeat—eligible for IBR, just not PAYE or REPAYE). Again, you can check the National Student Loan Data System (NSLDS) to see who owns your loans.
Loan Eligibility Table
|Loan Type||REPAYE Plan||PAYE Plan||IBR Plan||ICR Plan|
|Direct Subsidized Loans||Yes||Yes||Yes||Yes|
|Direct Unsubsidized Loans||Yes||Yes||Yes||Yes|
|Direct PLUS Loans made to students||Yes||Yes||Yes||Yes|
|Direct PLUS Loans made to parents||Never||Never||Never||If Consolidated|
|Direct Consolidation Loans||Yes||Yes||Yes||Yes|
|Direct Consolidation Loans that include a Parent PLUS loan||Never||Never||Never||Yes|
|Subsidized Federal Stafford Loans (FFEL)||If Consolidated||If Consolidated||Yes||If Consolidated|
|Unsubsidized Federal Stafford Loans (FFEL)||If Consolidated||If Consolidated||Yes||If Consolidated|
|FFEL PLUS Loans made to students||If Consolidated||If Consolidated||Yes||If Consolidated|
|FFEL PLUS Loans made to parents||Never||Never||Never||If Consolidated|
|FFEL Consolidation Loans||If Consolidated||If Consolidated||Yes||If Consolidated|
|FFEL Consolidation Loans that include a Parent PLUS Loan||Never||Never||Never||If Consolidated|
|Federal Perkins Loans||If Consolidated||If Consolidated||If Consolidated||If Consolidated|
As you can see, most new graduates’ loans automatically qualify for any of the plans you’d actually want to use, and most that don’t become so once consolidated. The exception is the Parent PLUS loan, which ruins everything.
And here’s an example of how much a resident or fellow might expect to pay monthly as they advance through training:
|Monthly IDR Payments by year*|
|Repayment Year||Certification Tax Year||Composite Salary||PAYE/REPAYE||IBR|
*Assuming an intern salary of $55,000, increasing by $2,000 annually with repayment starting in July using tax returns for income certification. Each calendar repayment year is based on two academic years: the second half of one with the first half of the next.
Here is an illustration of how IDR payments scale with household income in the continental US. The more you make, the closer it gets to being 10/15% as income grows relative to the poverty level:
|IDR Payments by Household Income|
|AGI||Monthly PAYE/REPAYE||Annual PAYE/REPAYE||Monthly IBR||Annual IBR|
Federal repayment logistical considerations
You don’t need a company to help you enter or change your payment plan or “qualify” for forgiveness. These are scams. Picking or switching repayment plans is free and only takes a few minutes online.
You can’t just directly pay off the principal
Unlike your mortgage or many other loans, you can’t just apply extra payments directly to the loan principal. The servicer must put any extra payments toward interest first. Given the negative amortization scenario most residents find themselves in (and which fuels the REPAYE subsidy), making extra payments isn’t going to help you reduce your principal/slow your rate of interest growth (it’ll reduce the actual amount of unpaid accrued interest, but making payments toward principal would allow less to accrue per unit time in the first place). Until you pay off all the accrued interest, you can’t dent the principal.
Auto-debit rate reduction
You do get an automatic 0.25% interest rate reduction once you begin auto-pay (auto-debiting monthly payments from your checking or savings account).
Note this only happens when you’re auto-paying a non-zero amount, so if you have a calculated zero payment, you don’t get the rate reduction. You can’t ask to make a $5 payment and get the benefit; it’s only once your required payment is more than $0.
You can always switch plans to any plan for which you are eligible. This means that you can always switch to Standard and REPAYE (which have no eligibility requirements) and can switch into IBR or PAYE when you meet the above criteria (e.g. partial financial hardship). Remember, if you try to switch plans, the greater of your initial repayment balance or your current loan balance is used for the PFH calculation. Just because your loans may be getting smaller doesn’t mean you don’t have a PFH.
The following are events that trigger capitalization:
- End of grace period / beginning of repayment
- End of a period of forbearance or deferment
- Change of repayment plan or consolidation
- Loss of partial financial hardship in IBR or PAYE
- Failure to submit IDR annual income certification on time
- Loan Default
Dealing with servicers
It’s very important to talk to your servicer and make sure that everybody is on the same page and your plans will work out the way they’re supposed to. It’s also very important not to simply take the phone representatives’ word if what they’re saying seems wrong or doesn’t make sense with everything you’ve learned elsewhere. The servicer folks are “free” customer service representatives, not experts in finance or even experts about their own services. Frequently, they are misinformed about the details and nuances of what is and is not allowed. Whether they’re being willfully ignorant or deliberately obtuse, servicers are notorious for saying things that are simply not true. You may need to be prepared to fight if you plan anything creative, particularly when it comes to switching plans and getting your loans forgiven.
If you’re dissatisfied, you can file an official complaint via the Federal Student Aid Feedback System: https://feedback.studentaid.ed.gov/. They will attempt to resolve the issue within 60 days.
If your servicer is being evil or dishonest and you can’t get them to see reason and your complaint didn’t work out, you can enlist the help of a federal student loan ombudsmen, a free last resort offered by the US Department of Education. The Federal Student Aid (FSA) Ombudsman Group is an impartial third party that may be able to help resolve issues, but they aren’t guaranteed to be on your side. You can read more info about it here if you’re curious or need to: https://studentaid.ed.gov/sa/repay-loans/disputes/prepare.
Many borrowers have had good luck filing a complaint with the Consumer Finance Protection Bureau (CFPB), especially with repeated miscounting of qualifying payments by FedLoan with regard to PSLF: https://www.consumerfinance.gov/complaint/
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