By Ben Luthi
Edited by Peggy BennettWhat Is an Income-Based Repayment Plan?
By Ben LuthiEdited by Peggy Bennett
Quick Answer
- The income-based repayment plan sets your federal student loan payment as low as 10% of your discretionary income and forgives any remaining balance after 20 or 25 years.
- Most federal student loans are eligible for IBR.
- With federal student loan changes, IBR is the only income-driven plan remaining.
The income-based repayment plan reduces your federal student loan payment to as little as 10% of your discretionary income and forgives any remaining balance after 20 or 25 years. It's also the only legacy income-driven plan that will remain available long term.
If you're struggling to keep up with your federal student loan payments, here's what to know about how the income-based repayment plan works and what to consider before applying.
What Is an Income-Based Repayment Plan?
The income-based repayment plan, or IBR for short, reduces your federal student loan payment based on your discretionary income.
If you received your first federal student loan on or after July 1, 2014, your new payment under IBR will be 10% of your discretionary income, and you'll recertify your income each year. If you still have a balance after 20 years, the remaining amount will be forgiven.
If you received a federal student loan before July 1, 2014, the IBR plan cuts your monthly payment to 15% of your discretionary income, forgiving any remaining balance after 25 years.
Any federal student loan debt forgiven under an income-driven repayment plan is subject to federal income tax. Some states may assess a state income tax as well.
Note: The One Big Beautiful Bill Act (OBBBA) made IBR the only legacy income-driven repayment plan that will remain available indefinitely. Saving on a Valuable Education (SAVE) will be phased out in 2026, and Pay As You Earn (PAYE) and income-contingent repayment (ICR) are being phased out by July 1, 2028.
How Is Income-Based Repayment Calculated?
The U.S. Department of Education calculates your discretionary income by taking the difference between your annual income and 150% of the poverty guideline for your state of residence and family size.
Each year, you'll recertify these details, which means your payment may increase as your income does. However, it will never exceed the monthly payment you'd otherwise pay based on the 10-year standard repayment plan.
Who Is Eligible for Income-Based Repayment?
Any federal student loan borrower can qualify for the IBR plan as long as their eligible loans were first disbursed before July 1, 2026. The OBBBA removed the previous "partial financial hardship" requirement, which had locked out borrowers whose IBR payment would have been higher than their standard 10-year payment. Eligible loans include:
- Direct subsidized loans
- Direct unsubsidized loans
- Direct PLUS loans made to graduate or professional students
- Direct consolidation loans
- Subsidized federal Stafford loans
- Unsubsidized federal Stafford loans
- Federal Family Education (FFEL) PLUS loans
- FFEL consolidation loans
- Perkins loans (if consolidated)
Parent PLUS loans are not directly eligible for IBR. However, parents can gain access by consolidating their parent PLUS loans into a direct consolidation loan before July 1, 2026, enrolling in the ICR plan, making at least one payment under ICR, and then switching to IBR before July 1, 2028.
Pros and Cons of Income-Based Repayment
Before you apply for an IBR plan with your loan servicer, it's important to consider both the advantages and disadvantages that come with it.
Pros
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Financial relief: If your financial situation is tight, reducing your student loan payment can give you some breathing room. This can be particularly beneficial if you're at risk of falling behind on student loan or other debt payments.
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Possibly no monthly payment: If your annual income is below the 150% discretionary income threshold, your monthly payment may be set to $0.
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Much of your debt may be forgiven: If your income never increases to the point where it makes sense to switch back to the 10-year standard repayment schedule, you may get a significant chunk of your student loan debt forgiven after you complete your IBR plan repayment term.
Cons
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Longer debt term: Instead of the standard 10-year repayment plan with federal loans, your repayment term will be 20 or 25 years, depending on when you first started borrowing federal loan money. If 10 years sounds like a long time to be in debt, the idea of doubling that time (or more) may not sound too appealing.
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Interest: Because your repayment term will be extended to up to 25 years, you'll end up paying more in interest than if you were to stay on the standard plan. Your payments may not even be enough to cover the accrued interest, which means your student loan balance may grow over time.
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Taxable forgiveness: The temporary federal exemption that excluded forgiven student loan debt from income tax expired at the end of 2025. As of January 1, 2026, balances forgiven through IBR are once again treated as taxable income at the federal level, and some states may tax them as well.
How to Apply for Income-Based Repayment
You can apply for an IBR plan with your student loan servicer or through the Federal Student Aid (FSA) website. Here are the steps you'll take:
- Research all your options. Before you apply for an IBR plan, take your time to learn about and compare the other income-driven repayment plans to ensure you pick the one that's the right fit for you. You can even use a loan simulator to get an idea of what your payments would look like with each one.
- Submit an application. When you're ready to apply, fill out and submit an income-driven repayment plan request through the FSA website. The process takes 10 minutes or less, and you'll need your FSA ID, financial information, personal information and your spouse's information, if applicable.
Tip: After you submit your request, it can take a few weeks for your servicer to process it. To speed up the process, submit all the required documentation as soon as possible.
Alternatives to Income-Based Repayment
If IBR isn't the right fit, the federal government offers a handful of other plans and relief options. Here are some alternatives to consider.
Pay As You Earn (PAYE)
With this plan, your payment will be 10% of your discretionary income, calculated the same as the IBR plan, and will never be higher than your payment on the standard 10-year plan. Your repayment term will be extended to 20 years.
PAYE is closed to most new enrollees and will be fully eliminated by July 1, 2028.
Income-Contingent Repayment (ICR)
The ICR plan is the only income-driven option historically available to parent PLUS borrowers who first consolidate their loans.
Your repayment term is 25 years, and your monthly payment is the lesser of 20% of your discretionary income (based on 100% of the federal poverty guideline) and what you would pay on a 12-year repayment term, adjusted according to your income.
Like PAYE, ICR is being phased out and will end by July 1, 2028.
Repayment Assistance Plan (RAP)
RAP is the new income-driven repayment plan created under the OBBBA. It becomes available July 1, 2026, and will be the only income-based option for borrowers whose loans are first disbursed on or after that date.
Monthly payments are set at 1% to 10% of your adjusted gross income, depending on your income bracket, with a $10 minimum and a $50 reduction for each dependent. Any remaining balance is forgiven after 30 years of qualifying payments.
Deferment or Forbearance
If your financial hardship is short term in nature, you may also consider deferment or forbearance instead of an income-driven repayment plan. Both options can give you a break from monthly payments for at least a few months until you're back on your feet.
Frequently Asked Questions
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About the author
Ben Luthi
Ben Luthi has worked in financial planning, banking and auto finance, and writes about all aspects of money. His work has appeared in Time, Success, USA Today, Credit Karma, NerdWallet, Wirecutter and more.
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