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

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Struggling with high student loan payments? Income-Driven Repayment (IDR) plans can lower your monthly payments based on your income and family size. This comprehensive guide explains all four IDR plans and helps you choose the best one.

What is Income-Driven Repayment?

Income-Driven Repayment (IDR) plans calculate your monthly payment based on:

• Your income: Adjusted Gross Income (AGI) from your tax return
• Family size: Number of people in your household
• Poverty guidelines: Federal poverty level for your state
• Loan type: Undergraduate vs graduate loans

Instead of paying a fixed amount like standard repayment, your payment adjusts annually based on your income. If your income is low enough, your payment could be $0.

The Four IDR Plans

1. SAVE Plan (Saving on a Valuable Education)

Newest and most generous plan (replaced REPAYE in 2023)

• Payment: 5% of discretionary income (undergrad loans) or 10% (grad loans)
• Discretionary Income: Income above 225% of poverty line
• Forgiveness: 20 years (undergrad) or 25 years (grad)
• Interest Subsidy: Government covers unpaid interest (balance won't grow)
• Spousal Income: Only included if filing jointly

2. PAYE Plan (Pay As You Earn)

Good for newer borrowers (first loan after Oct 1, 2007)

• Payment: 10% of discretionary income
• Discretionary Income: Income above 150% of poverty line
• Forgiveness: 20 years
• Payment Cap: Never more than standard 10-year payment
• Spousal Income: Only included if filing jointly

3. IBR Plan (Income-Based Repayment)

Available to most borrowers

• Payment: 10% (new borrowers after July 1, 2014) or 15% (older borrowers)
• Discretionary Income: Income above 150% of poverty line
• Forgiveness: 20 years (10%) or 25 years (15%)
• Payment Cap: Never more than standard 10-year payment
• Spousal Income: Only included if filing jointly

4. ICR Plan (Income-Contingent Repayment)

Oldest plan, least favorable terms

• Payment: 20% of discretionary income OR fixed payment over 12 years (whichever is less)
• Discretionary Income: Income above 100% of poverty line
• Forgiveness: 25 years
• Spousal Income: Always included (even if filing separately)
• Parent PLUS: Only IDR plan available for Parent PLUS loans (via consolidation)

Side-by-Side Comparison

Feature	SAVE	PAYE	IBR	ICR
Payment % (Undergrad)	5%	10%	10% or 15%	20%
Payment % (Grad)	10%	10%	10% or 15%	20%
Poverty Threshold	225%	150%	150%	100%
Forgiveness Timeline	20-25 years	20 years	20-25 years	25 years
Interest Subsidy	Full (balance won't grow)	Partial (3 years)	Partial (3 years)	None
Payment Cap	None	Standard 10-year	Standard 10-year	None
Spousal Income (Separate Filing)	Not included	Not included	Not included	Always included
Parent PLUS Eligible	No	No	No	Yes (via consolidation)

How Payments Are Calculated

All IDR plans use a similar formula:

2024 Federal Poverty Guidelines

Household Size	Poverty Guideline	150% Threshold	225% Threshold
1	$15,060	$22,590	$33,885
2	$20,440	$30,660	$45,990
3	$25,820	$38,730	$58,095
4	$31,200	$46,800	$70,200
5	$36,580	$54,870	$82,305

Which Plan Should You Choose?

Choose SAVE if:

• You have undergraduate loans (5% payment is lowest available)
• You want the strongest interest subsidy (balance won't grow)
• You're eligible (most Direct Loan borrowers are)
• You want the most generous discretionary income calculation (225% threshold)

Choose PAYE if:

• You're not eligible for SAVE
• You want a payment cap (won't exceed standard 10-year payment)
• You borrowed your first loan after Oct 1, 2007
• You have high income and want protection from very high payments

Choose IBR if:

• You're not eligible for SAVE or PAYE
• You want a payment cap
• You have older loans (before 2007)

Choose ICR if:

• You have Parent PLUS loans (only option via consolidation)
• You're not eligible for other plans
• You have very old loans

Loan Forgiveness After 20-25 Years

After making payments for 20-25 years (depending on the plan), any remaining balance is forgiven. However:

• Tax Bomb (Currently Suspended): Forgiven amount may be taxable income
• Suspension Through 2025: Forgiveness is tax-free through 2025
• After 2025: Unclear if tax-free status will be extended
• PSLF Alternative: Public Service Loan Forgiveness (10 years) is always tax-free

Annual Recertification

You must recertify your income and family size every year:

• Deadline: Annual recertification date (set when you enroll)
• Documents Needed: Tax return or pay stubs, family size info
• Miss Deadline: Payment reverts to standard 10-year amount (with capitalized interest!)
• Auto-Recertification: Available if you give IRS permission to share tax data

Common Mistakes to Avoid

• Not recertifying on time: Results in capitalized interest and higher payments
• Choosing the wrong plan: SAVE is best for most people
• Not updating family size: Marriage, kids, divorce all affect payments
• Forgetting about tax implications: Plan for potential tax bomb after 2025
• Not considering PSLF: If you work in public service, PSLF is better (10 years, tax-free)

Key Takeaways

• SAVE plan offers the lowest payments for most borrowers (5-10% of discretionary income)
• Payments are based on income and family size, not loan balance
• $0 payments are possible if income is below poverty threshold
• Forgiveness after 20-25 years, but may be taxable
• Must recertify annually or face capitalized interest
• SAVE has strongest interest subsidy (balance won't grow)

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