Income-driven repayment (IDR) plans cap your federal student loan payments at a percentage of your discretionary income and forgive the remaining balance after 20 to 25 years of qualifying payments. For borrowers whose loan balance is high relative to their income, these plans can dramatically reduce monthly payments — sometimes to zero. Understanding which plan fits your situation can save you thousands of dollars over the life of your loans.
The Four Income-Driven Repayment Plans
SAVE (Saving on a Valuable Education)
SAVE is the newest IDR plan, introduced in 2023 as a replacement for the REPAYE plan. It offers the most generous terms of any IDR plan currently available. Key features:
- Monthly payments are capped at 5% of discretionary income for undergraduate loans (10% for graduate loans; 5%–10% blend for mixed borrowers)
- Discretionary income is defined as income above 225% of the federal poverty guideline — more generous than other plans
- If your calculated payment does not cover the interest that accrues, the government waives that unpaid interest — your balance does not grow
- Forgiveness after 10 years for borrowers with original balances of $12,000 or less; 20 years for undergraduate-only borrowers; 25 years for graduate borrowers
SAVE is the best option for most borrowers with undergraduate loans. The interest subsidy feature prevents balance growth, which has historically been the biggest problem with IDR plans for low-income borrowers.
PAYE (Pay As You Earn)
PAYE caps payments at 10% of discretionary income and offers forgiveness after 20 years. Discretionary income is calculated as the amount above 150% of the federal poverty guideline. PAYE is only available to borrowers who took out their first federal loan on or after October 1, 2007, and received a disbursement on or after October 1, 2011.
PAYE includes a payment cap — your monthly payment will never exceed what the standard 10-year repayment amount would be. This protects borrowers whose income grows significantly over time from having payments balloon.
IBR (Income-Based Repayment)
IBR has two versions. For borrowers who took out loans before July 1, 2014, IBR caps payments at 15% of discretionary income and forgives balances after 25 years. For borrowers who took out loans on or after July 1, 2014, IBR caps payments at 10% of discretionary income with forgiveness after 20 years. IBR is widely available — any borrower with a partial financial hardship qualifies.
ICR (Income-Contingent Repayment)
ICR is the oldest IDR plan and the least favorable. It caps payments at the lesser of 20% of discretionary income or the 12-year fixed payment amount. Forgiveness comes after 25 years. ICR is worth considering mainly for Parent PLUS borrowers who consolidate into a Direct Consolidation Loan — it is the only IDR plan available to Parent PLUS holders, though they must consolidate first.
Comparing the Four Plans
| Plan | Payment Cap | Forgiveness | Interest Subsidy |
|---|---|---|---|
| SAVE | 5%–10% of discretionary income | 10–25 years | Yes — full subsidy |
| PAYE | 10% of discretionary income | 20 years | Partial |
| IBR (new) | 10% of discretionary income | 20 years | Partial |
| IBR (old) | 15% of discretionary income | 25 years | Partial |
| ICR | 20% of discretionary income | 25 years | No |
IDR and Public Service Loan Forgiveness (PSLF)
IDR plans are the required repayment structure for borrowers pursuing Public Service Loan Forgiveness. PSLF forgives your entire remaining federal loan balance after 120 qualifying monthly payments while employed full-time by a qualifying employer — government agencies, non-profits with 501(c)(3) status, and certain other public service organizations.
If you work in public service, enroll in an IDR plan (SAVE is typically best for this purpose), submit the PSLF Employment Certification Form annually, and track your payment count carefully. After 120 payments — 10 years — your entire balance is forgiven tax-free.
IDR Tax Considerations
Loan forgiveness under standard IDR plans (not PSLF) has historically been treated as taxable income in the year of forgiveness. If you have $80,000 forgiven after 20 years, that $80,000 counts as income for that tax year. The American Rescue Plan Act temporarily made IDR forgiveness tax-free through 2025. Congress must extend this provision or update it for the forgiveness tax issue to persist into future years — check current IRS guidance as your forgiveness date approaches.
PSLF forgiveness is permanently tax-free under current law.
How to Enroll in an IDR Plan
- Log in to studentaid.gov with your FSA ID
- Navigate to the “Repayment” section and select “IDR Plan Request”
- Link your tax return via IRS Data Retrieval Tool (or manually enter income)
- Choose your plan — SAVE is the best option for most borrowers
- Recertify annually — your income and family size are rechecked each year to recalculate your payment
When IDR Is Not the Right Choice
IDR plans are designed for borrowers whose debt is high relative to income. If you earn significantly more than your loan balance and can afford to pay off your loans within 10 years, you will pay less total interest on the standard repayment plan. IDR plans minimize monthly payments but extend repayment, which means more total interest paid over time unless you eventually receive forgiveness.
Bottom Line
SAVE is the best income-driven repayment plan for most borrowers in 2026 — it has the lowest payment requirements, the most generous income threshold, and a full interest subsidy that prevents balance growth. Enroll at studentaid.gov, recertify your income annually, and if you work in public service, stack SAVE with PSLF for the most powerful debt relief combination available.