Income-driven repayment plans can potentially lower your monthly student loan payments. These plans base payment on a percentage of the borrower’s discretionary income or adjusted gross income (AGI), as opposed to the amount owed. Generally, if a borrower’s total student loan debt at graduation exceeds their annual income, they will have a lower loan payment under an income-driven repayment plan.
Discretionary income is the amount by which adjusted gross income (AGI) exceeds a specific multiple of the poverty line (P.L.).
The One Big Beautiful Bill Act (OBBBA) passed in July 2025 made significant changes to the types of income-driven repayment plans available.
Types of Income-Driven Repayment Plans:
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Income-Contingent Repayment (ICR). ICR is available on loans issued through the federal Direct Loan program. Loan payments do not include a standard repayment cap. Available only if all active loans are disbursed prior to July 1, 2026. Will be phased out on July 1, 2028.
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Income-Based Repayment (IBR). Until the launch of the new RAP program, IBR is the only income-driven repayment plan that is available to borrowers in both the Federal Family Education Loan Program (FFELP) and the Direct Loan Program.
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Pay-As-You-Earn Repayment (PAYE). PAYE is available on loans issued through the federal Direct Loan program. Available only if all active loans are disbursed prior to July 1, 2026. Will be phased out on July 1, 2028.
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Repayment Assistance Plan (RAP). Created as a result of the OBBBA, RAP bases a borrower’s monthly payment on AGI plus the number of dependents in a household with a minimum of $10 per month. It will be available to all student borrowers by July 1, 2026. In addition to Direct Loans, FFELP loans will be eligible for RAP without requiring consolidation into a Direct Loan.
ICR and RAP do not have a standard repayment cap, unlike IBR and PAYE, meaning you could at a certain income level pay a higher monthly payment than a Standard Repayment Plan.
There is another repayment plan based on income, Income-Sensitive Repayment (ISR), which is available only in the FFEL program. However, it involves a mutual agreement between borrower and servicer/lender to set the monthly payment to a specified percentage (4% to 25%) of gross income for a specified period of time.
Key Differences Among Plans
The main differences among the income-driven repayment plans are illustrated by this table.
Repayment Plan |
Percent of Discretionary Income |
Definition of Discretionary Income |
Repayment Term
|
Applies? |
ICR |
20% |
AGI – 100% PL |
300 payments (25 years) |
Loans taken before 7/1/26 |
IBR |
15% |
AGI – 150% PL |
300 payments (25 years) |
Any dates for loans taken |
PAYE |
10% |
AGI – 150% PL |
240 payments (20 years) |
Loans taken before 7/1/26 |
RAP |
Not used* |
Not used* |
360 payments (30 years) |
Will be open by 7/1/26 |
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Under the American Rescue Plan Act of 2021, loan forgiveness after 20 or 25 years of payments in an income-driven repayment plan is tax-free through 2025.
Another program, Public Service Loan Forgiveness (PSLF), cuts the number of payments to 120 (10 years). The loan forgiveness under PSLF is permanently tax-free.
How Much Can You Save? Crunch the Numbers
The minimum starting payment for each of the plans above plans will differ based on your outstanding loan amounts, household size and current income.
We make it simple for you to get a personalized evaluation of how each income-driven repayment plan (ICR, IBR, PAYE, and RAP) can help you save on monthly payments through our Income-Driven Repayment Calculator. Just enter your data once – it takes less than a minute – to see all four programs’ results.
