Differences between ICR, IBR, PAYE and REPAYE Student Loan Repayment

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By Mark Kantrowitz

July 27, 2021

Both Democratic and Republican policymakers like income-driven repayment plans, which may be why there are so many of them. Each new income-driven repayment plan is slightly different than the rest. The myriad of details and differences between ICR, IBR, PAYE and REPAYE can be confusing for student loan borrowers.

Types of Income-Driven Repayment Plans

There are currently four main income-driven repayment plans:

There’s also a little-used Income-Sensitive Repayment (ISR) plan in the Federal Family Education Loan Program (FFELP). ICR, IBR, PAYE and REPAYE are all available in the Direct Loan program. IBR student loan repayment is also available in the FFEL loan program. A Direct Consolidation Loan may also qualify for an income-driven repayment plan, but a Perkins Loan does not.

Private student loans are not eligible for any federal loan repayment or forgiveness options. Borrowers should contact their loan servicer if they want to switch repayment plans.

Monthly Loan Payments

There are several important differences in how the monthly loan payment works, as shown in this table.

Loan Payment Calculations

Repayment Plan Discretionary Income % of Discretionary Income Payment Cap Marriage Penalty
ISR AGI 4% – 25% No Cap No
ICR AGI – 100% Poverty Line 20% No Cap No, if separate returns are filed
IBR AGI – 150% Poverty Line 15% Standard Repayment No, if separate returns are filed
PAYE AGI – 150% Poverty Line 10% Standard Repayment No, if separate returns are filed
REPAYE AGI – 150% Poverty Line 10% No Cap Yes, regardless of tax filing status
Source: Saving for College internal research

The percentage of discretionary income for PAYE may depend on when the borrower obtained their student loan. The percentage is 10% for borrowers who are new borrowers as of July 1, 2014, and 15% otherwise. However, President Obama made PAYE available to new borrowers as of October 1, 2007 who have at least one student loan disbursed on or after October 1, 2011.

There is a different minimum monthly payment for each of the income-driven repayment plans, but your interest rate does not change. The minimum payment is $5.00 under ICR, unless the calculated payment is zero, in which case the payment is zero. The minimum payment is $10.00 under IBR, PAYE and REPAYE unless the calculated payment is less than $5.00, in which case the payment is zero.

Use an ICR calculator, IBR calculator, PAYE calculator and REPAYE calculator to calculate the monthly loan payment and total payments under each of the income-driven repayment plans.

Repayment Terms

The repayment period and what happens at the end of loan repayment varies according to the income-driven repayment plan. But, the repayment term is generally longer than the 10 year standard repayment plan for a federal student loan.

For ICR, IBR and graduate PLUS loan borrowers, the length of the repayment term is 25 years.

The repayment term is 20 years under PAYE and for borrowers of just undergraduate loans under REPAYE.

For PAYE, the repayment term may depend on when the student loan borrower obtained their loans. The length of the repayment term is 20 years for borrowers who are new borrowers as of July 1, 2014, and 25 years otherwise. As noted above, the 20-year repayment term under PAYE may be available to new federal loan borrowers as of October 1, 2007 who received a loan on or after October 1, 2011.

For borrowers who are seeking public service loan forgiveness under ICR, IBR, PAYE and REPAYE, the repayment term is 10 years.

Tax Implications

The government cancels your remaining balance at the end of the repayment term. Prior to the American Rescue Plan of 2021, this loan forgiveness was tax-free under the public service loan forgiveness plan and taxable after 20 or 25 years in an income-driven repayment plan otherwise. Currently, all student loan forgiveness is tax-free through 2025.

When the tax-free status expires, the cancellation of the student loan debt under an income-driven repayment plan would substitute a smaller tax debt for the student loan debt. You can pay this tax debt all at once or in installments over up to six years.

If you can’t afford the tax payments, you can negotiate an offer in compromise with the IRS. If you are insolvent, with your debts exceeding your assets, you can ask the IRS to exclude all or part of the cancelled debt from your gross income by filing IRS Form 982.

Special Interest Payment Rules

Borrowers can be negatively amortized under ICR, IBR, PAYE and REPAYE, if the monthly payment is less than the new interest that accrues. This which means that your loan balance may actually increase every month despite making payments.

Accrued but unpaid interest is capitalized annually under ICR and PAYE until it reaches 10% or more of the loan’s original principal balance. Any additional interest is not capitalized until the loan status changes, such as when the borrower switches to a different repayment plan. Accrued but unpaid interest is not capitalized under IBR or REPAYE until the loan status changes.

The federal government may pay some of the accrued but unpaid interest on subsidized and unsubsidized loans in an income-driven repayment plan, as shown in this table.

Government-Paid Interest

Repayment Plan First 3 Years Remainder of Repayment Term
ISR None None
ICR None None
IBR 100% on subsidized loans None
PAYE 100% on subsidized loans None
REPAYE 100% on subsidized loans
50% on unsubsidized loans
50% on subsidized loans
50% on unsubsidized loans
Source: Saving for College internal research

What’s Next for Income-Driven Repayment Plans

Prior to the COVID-19 pandemic, President Trump had proposed replacing the existing income-driven repayment plans with a new income-driven repayment plan. The monthly payment would be 12.5% of discretionary income, or, the amount by which AGI exceeds 150% of the poverty line. The repayment term would be 15 years for borrowers with only undergraduate loans and 30 years for borrowers with any graduate loans. President Trump’s proposal also included a marriage penalty and does not cap payments at the standard repayment amount.

President Biden had also proposed a new income-driven repayment plan before he was elected, with a monthly payment equal to 5% of discretionary income, or, the amount by which AGI exceeds $25,000. Joe Biden’s proposal had a 20-year repayment term with tax-free forgiveness of the remaining debt.

Today, many borrowers are taking advantage of the federal student loan payment suspension. Suspended payments count toward loan forgiveness under IBR, ICR, PAYE and REPAYE repayment plans. In other words, the COVID-19 relief period will not delay your progress toward loan forgiveness. However, the payment suspension period is set to expire on January 31, 2022.

The Biden administration is currently working on a comprehensive review and overhaul of federal student loan programs, including income-based repayment plans.

A good place to start:

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