For many federal student loan borrowers, a monthly payment based on the standard 10-year schedule is more than their budget can handle. Income-driven repayment plans address that by tying payments to income and family size, and by forgiving any remaining balance after a set number of years. The rules are in flux. The 2025 budget reconciliation law, often called the One Big Beautiful Bill Act, created a new Repayment Assistance Plan and set a timeline to close several older plans to borrowers. This guide explains how income-driven repayment plans work, what is changing, and how to choose a plan for your situation.
Because details are still being implemented, always confirm current plan availability and deadlines on StudentAid.gov or with your loan servicer.
How income-driven repayment works
Income-driven repayment, or IDR, calculates your monthly payment as a percentage of your discretionary income or, under the new plan, your adjusted gross income. Payments are recalculated each year when you recertify income and family size. If your income is low enough, your payment can be as low as zero or a small minimum amount. After a set repayment period, any remaining balance can be forgiven.
Key features of IDR plans:
- Payments can rise or fall with income.
- Qualifying payments count toward Public Service Loan Forgiveness.
- You must recertify annually, though borrowers can authorize automatic retrieval of IRS data.
- Missing recertification can cause payments to jump to a higher amount.
The plans: then and now
Income-Based Repayment (IBR)
IBR has existed since 2009. Payments are generally 10 or 15 percent of discretionary income, depending on when you first borrowed, with forgiveness after 20 or 25 years. Under the 2025 law, IBR remains available, and the law removed the partial financial hardship requirement for entering IBR, making it more widely accessible.
Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR)
PAYE and ICR are among the older plans scheduled to close. The 2025 law requires borrowers in these plans to move to another plan by July 1, 2028; borrowers who do not choose may be placed in a plan by the Department.
SAVE
The Saving on a Valuable Education plan, introduced in 2023, was blocked by federal courts, and millions of borrowers were placed in a forbearance. The 2025 law ends SAVE, and borrowers enrolled in SAVE must move to another plan. Check StudentAid.gov for the timeline and your options, as the Department has announced transition steps.
Repayment Assistance Plan (RAP)
The Repayment Assistance Plan is the new income-driven plan created by the 2025 law and available beginning July 1, 2026. Key features as described in the law:
- Payments are a percentage of adjusted gross income, on a scale that rises from 1 percent to 10 percent as income increases.
- A minimum payment of $10 per month applies.
- Payments are reduced by $50 per month for each dependent.
- Unpaid monthly interest is waived when your payment does not cover it, so the balance does not grow from unpaid interest.
- The government provides a principal match in some cases so that each on-time payment reduces principal by at least a set amount.
- Remaining balances can be forgiven after 30 years of qualifying payments.
- Payments count toward Public Service Loan Forgiveness.
For loans made on or after July 1, 2026, borrowers will generally choose between a new standard plan with fixed payments over a term based on balance and RAP.
Who needs to act
- Borrowers in SAVE: Expect to move to another plan. Review options before a plan is chosen for you.
- Borrowers in PAYE or ICR: You will need to choose a new plan by the deadline.
- Borrowers in IBR: You may remain, but compare with RAP.
- New borrowers after July 1, 2026: You will have fewer plan choices.
- Parent PLUS borrowers: Repayment options for Parent PLUS loans are limited under the new law. If you consolidated Parent PLUS loans to access ICR, review deadlines closely, because access to IBR or RAP may depend on consolidating and enrolling before specified dates.
How to choose a plan
- Use the Loan Simulator on StudentAid.gov, which compares estimated payments under available plans using your loan data.
- Consider PSLF. If you work in public service, choose the plan with the lowest qualifying payment, since the balance is forgiven after 120 payments.
- Consider your forgiveness horizon. IBR forgives after 20 or 25 years, RAP after 30. If you expect to have a remaining balance, the shorter timeline may matter.
- Consider income growth. If your income will rise substantially, your IDR payment may eventually exceed the standard payment for some plans, and paying off faster may save interest.
- Consider marriage and taxes. Under IBR, married borrowers who file separately may exclude spousal income. Review how RAP treats joint filers.
Recertifying income
Each year, you must update your income and family size. You can consent to have the Department automatically obtain your federal tax information, which simplifies recertification. If your income drops in the middle of the year, you can request a recalculation rather than waiting.
Taxes on IDR forgiveness
A temporary federal exclusion for student loan forgiveness under the American Rescue Plan Act covered discharges through December 31, 2025. The 2025 law did not extend that general exclusion for IDR forgiveness, so forgiveness after a long repayment period may again be treated as taxable income at the federal level, although it permanently excludes discharges due to death or disability. PSLF forgiveness remains tax-free. Consult a tax professional about planning for any potential tax bill.
If you cannot afford any payment
If even an IDR payment is unaffordable, contact your servicer about deferment or forbearance. Unemployment deferment and economic hardship deferment are available for eligible borrowers. The 2025 law limits some future deferment options for new loans, so ask about current availability. Avoid default, which can lead to wage garnishment, seizure of tax refunds, and damaged credit.
Watch for scams
Some companies charge fees to enroll borrowers in IDR plans or promise immediate forgiveness. Applying for an IDR plan is free at StudentAid.gov or through your servicer, and the Department never requires upfront payment to reduce your loans. Never share your StudentAid.gov login with a third party.
Understanding discretionary income and AGI
Older IDR plans define discretionary income as your adjusted gross income minus a multiple of the federal poverty guideline for your family size, typically 150 percent. That means a large share of a low earner’s income is protected, and payments can be zero. RAP instead applies its percentage to adjusted gross income directly, with dependent reductions and a small minimum payment. Because AGI is reduced by pre-tax retirement contributions and certain other deductions, contributing more to a traditional 401(k) or 403(b) can lower your calculated payment under any IDR plan while also building retirement savings.
Keeping records
Save copies of every plan change, recertification, and servicer letter. Servicer transfers have caused errors in the past, and documentation helps resolve disputes about payment counts and plan placement.
Example: how an income-driven payment can change
Consider a single borrower whose income rises over several years after graduation. In the first year, a modest salary may result in a very low payment under an income-driven plan, freeing money for rent and emergency savings. As income rises, the annual recertification produces a higher payment. Under some older plans, payments are capped at the amount the borrower would pay under the 10-year standard plan based on the original balance, which protects high earners from very large payments. Understanding whether a cap applies to your plan helps you predict long-term costs and decide whether to make extra payments.
Frequently Asked Questions
Will my payment go up under RAP?
It depends on your income, family size, and current plan. Some borrowers will pay more than under SAVE, and others may pay less than under older plans. Use the Loan Simulator.
Do payments under RAP count for PSLF?
Yes. RAP is a qualifying plan for Public Service Loan Forgiveness.
What happens if I miss recertification?
Your payment may increase to a higher amount, and you may be moved to a different calculation until you recertify. Submit your information as soon as possible.
Can private student loans use income-driven repayment?
No. IDR plans are available only for federal student loans.
This article is for general informational purposes only and is not legal, medical, tax, or financial advice. Rules vary by state and change over time; confirm details with the relevant agency or a licensed professional.
