Income-Driven Repayment Options

Income-driven repayment plans are most helpful to those whose monthly student loan payments comprise a significant portion of their annual income. These plans establish reasonable monthly payments and put a cap on the number of years borrowers are required to pay toward their student loan.

The Federal Government offers these Income-Driven Repayment Plan options through StudentAid.gov.
We have summarized them below:

Income-Based Repayment Plan (IBR):

You pay 15% of your adjusted gross income per year above 150% of the federal poverty level (FPL). After 25 years any remaining student debt is forgiven.

An Example:

In 2016, 150% of the FPL was $17,820.
You are a single adult making $40,000/year.
Your salary ($40,000) minus 150% of the FPL ($17,820) equals your adjusted gross income per year ($22,180).
15% of $22,180 is $3,327, which is the total amount you would pay per year toward your student debt. This averages out to be $277.25/month.
Each year you would re-certify and your payment would be adjusted based on your income.
After 25 years, if you still had remaining debt, it would be forgiven.

Pay as You Earn Repayment Plan (PAYE):

You pay 10% of your adjusted gross income above 150% of the federal poverty level (FPL). After 20 years any remaining student debt is forgiven.

An Example (using the same information provided above):

In 2016, 150% of the FPL was $17,820.
You are a single adult making $40,000/year.
Your salary ($40,000) minus 150% of the FPL ($17,820) equals your adjusted gross income per year above 150% FPL ($22,180).
10% of $22,180 is $2,218 which is the total amount you would pay per year toward your student debt. This averages out to be $184.83/month.
Each year you would re-certify and your payment would be adjusted based on your income.
After 20 years, if you still had remaining debt, it would be forgiven.

Income Contingent Repayment Plan (ICR):

You pay the lesser of the following:

20% of your discretionary income OR
a fixed payment over the course of 12 years, adjusted according to your income.

For Example:

Discretionary income is the difference between your income and 100% of the federal poverty level.
In 2016, 100% of the FPL was $11,880.
You are a single adult and make $40,000/year.
Your salary ($40,000) minus 100% of the FPL ($11,880) equals your discretionary income ($28,180).
20% of $28,180 is $5,624 which is the total amount you would pay per year toward your student debt. This averages out to be $468.67/month.
If you had remaining student debt after 25 years, it would be forgiven.

The amount of a 12-year Standard Repayment plan will vary depending on the total amount of student-debt and the borrower’s average income.

With the ICR plan, you would pay the lesser of the two options above.