What Is Income-Driven Repayment?
Income-driven repayment (IDR) plans are federal student loan repayment options that set monthly payments based on the borrower's discretionary income rather than the loan balance. Since July 1, 2026, the main options are Income-Based Repayment (IBR) and the new Repayment Assistance Plan (RAP); the older PAYE and ICR plans are being phased out by July 1, 2028, and the SAVE plan is no longer available after a court vacated it. Depending on the plan, remaining balances are forgiven after 20 to 30 years of qualifying payments. IDR enrollment is the primary mechanism for avoiding default since payments restarted.
Key Facts
- Over 11 million federal student loan borrowers are enrolled in income-driven repayment plans — roughly 25% of all borrowers in repayment, with enrollment surging after payments restarted in October 2023
- The SAVE plan (Saving on a Valuable Education), which capped undergraduate payments at 5% of discretionary income, was blocked in court in 2025 and its rule vacated; it is no longer available. The Repayment Assistance Plan, open since July 1, 2026, charges 1% to 10% of adjusted gross income, rising with income, minus $50 a month for each dependent
- Under IBR, the payment is $0 when income is below 150% of the federal poverty guideline for your family size, preventing default without requiring payment; RAP instead charges a small base payment even at the lowest incomes
- The remaining balance is forgiven after 20 or 25 years of qualifying payments under IBR, depending on when you first borrowed, and after 30 years under RAP — and IDR forgiveness after 2025 may be taxable income now that the temporary federal tax exclusion has expired
- Negative amortization is common under IDR: when payments are less than accruing interest, the loan balance grows over time, with some borrowers owing more after 10 years of payments than they originally borrowed
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Which IDR Plans Are Available?
Federal rules effective July 1, 2026 changed the lineup. Each plan has different eligibility rules, payment formulas, and forgiveness timelines:
- RAP (Repayment Assistance Plan): New on July 1, 2026. Payments are 1% to 10% of adjusted gross income, rising with income, minus $50 a month for each dependent. When an on-time payment barely reduces principal, the government adds a matching principal reduction. Forgiveness after 360 qualifying payments (30 years). Open to Direct Loan borrowers.
- IBR (Income-Based Repayment): Payments at 10% of discretionary income (15% for borrowers who first borrowed before July 1, 2014). Forgiveness after 20 or 25 years. You no longer have to show a partial financial hardship to enroll, but loan-type rules still apply.
- PAYE (Pay As You Earn): Payments at 10% of discretionary income. Forgiveness after 20 years. Being phased out: borrowers on PAYE must move to another plan before July 1, 2028.
- ICR (Income-Contingent Repayment): Payments at 20% of discretionary income or the amount on a 12-year fixed plan adjusted for income, whichever is less. Forgiveness after 25 years. Parent PLUS borrowers have used it through consolidation. Being phased out: borrowers on ICR must move to another plan before July 1, 2028.
- SAVE (Saving on a Valuable Education): No longer available. A federal appeals court blocked it in February 2025 and its rule was later vacated in full; borrowers who were enrolled must choose another plan.
How Is the Payment Calculated?
IBR, PAYE and ICR use the same basic formula (RAP is different; see above):
- Start with adjusted gross income (AGI) from the most recent tax return.
- Subtract a share of the federal poverty guideline for your family size: 150% for IBR and PAYE, 100% for ICR.
- The result is discretionary income. Multiply by the plan's percentage (10-20%).
- Divide by 12 for the monthly payment.
The payment depends on income and family size, not on whether you owe $30,000 or $100,000.
The Negative Amortization Problem
When IDR payments are less than the interest accruing on the loan, the balance grows. A borrower with $80,000 in graduate loans at 6.5% accrues $5,200/year in interest. If their IDR payment is $200/month ($2,400/year), $2,800 in unpaid interest is added to the balance each year. After 10 years, they may owe $108,000 on an original $80,000 loan — even while making every payment on time. RAP is designed to limit this with its matching principal reduction, but on other plans a growing balance creates psychological distress and financial risk if borrowers leave IDR.
How IDR Connects to the Default Crisis
IDR enrollment is the primary safety valve preventing mass student loan default after the payment restart. Borrowers who cannot afford standard payments but don't enroll in IDR risk sliding into delinquency and eventual default. Student-loan delinquency is contextual evidence of the household credit strain the American Distress Index captures through its Delinquency domain, which scores mortgage, credit-card, consumer-loan, and auto-loan delinquency. The Federal Reserve Bank of New York reports that 10.6% of student loan balances were 90 or more days late in Q2 2026.
State-by-State Variations
IDR plans are federal programs with uniform national rules, but state tax treatment of forgiven student loan debt varies — a critical difference for borrowers approaching the 20-25 year forgiveness horizon.
| State | Key Difference | Guide |
|---|---|---|
| California | Conforms to federal tax exclusion for student loan forgiveness through 2025. State law AB 1589 excludes forgiven student loans from state income tax. | |
| New York | Excludes forgiven student loan debt from state income tax. Also operates a state-level Get on Your Feet Loan Forgiveness Program for recent graduates earning under $50,000. | |
| Mississippi | Taxes forgiven student loan debt as income at the state level, with rates up to 5%. Borrowers receiving IDR forgiveness may owe thousands in state taxes on the forgiven amount. | |
| Indiana | Taxes forgiven student loan debt as state income. Combined with federal taxation (if the federal exclusion expires after 2025), borrowers could face significant tax bills on forgiveness. | |
| North Carolina | Taxes forgiven student loan debt as state income at a flat 4.5% rate. A borrower with $50,000 forgiven could owe $2,250 in state taxes alone. |
Frequently Asked Questions
Which IDR plan has the lowest payments?
It depends on your income, family size, and loans. IBR can be $0 at low incomes and is 10% or 15% of income above 150% of the poverty guideline. RAP charges 1% to 10% of adjusted gross income minus $50 a month per dependent. SAVE, which had the lowest payments for many borrowers, is no longer available. The Loan Simulator on StudentAid.gov can compare your options.
Do I have to pay taxes on forgiven student loan debt?
The American Rescue Plan Act excluded forgiven student loan debt from federal taxable income through December 31, 2025. That temporary exclusion has expired, so IDR forgiveness after 2025 may be taxable. Public Service Loan Forgiveness remains tax-free. State tax treatment varies — some states tax forgiven debt, others don't.
Can I switch between IDR plans?
Often, but it depends on when you borrowed. For Direct Loans made before July 1, 2026, you can generally change to any other repayment plan you are eligible for by notifying the Department, with exceptions. For Direct Loans made on or after July 1, 2026, you can switch only between the Tiered Standard plan and the Repayment Assistance Plan. Ask your servicer whether earlier payments will count toward forgiveness before you switch.
What happens if I don't recertify my income annually?
You must recertify income annually, and the Department can do it automatically if you have approved sharing your tax information. If you do not provide the information it needs by the time your last payment in the 12-month period is due, your payment generally becomes the amount you would pay on a 10-year standard plan, worked out differently under each IDR plan.
Does IDR count toward Public Service Loan Forgiveness?
Yes. Payments made under any IDR plan count toward PSLF's 120-payment requirement, as long as you work for a qualifying employer (government or 501(c)(3) nonprofit). PSLF forgiveness is tax-free at both federal and state levels, making it more valuable than standard IDR forgiveness.