Options to Reduce Federal Loan Payments

If you have difficulty making ends meet while making your student loan payments, there are several options available.

Keep in mind, anytime you lower your payments and extend the repayment period, you pay more interest. In some cases, forgiven loan balances may be subject to federal and/or state income taxes. Review all your options carefully and discuss with your loan servicer.

Use the Federal Student Loan Repayment Calculator to see what repayment plan will fit your needs best. You can use your FSA ID for estimates based on your loan information in the NSLDS.

Repayment Plans

  • Income Based
  • Pay As You Earn
  • Revised Pay As You Earn
  • Income Contingent
  • Income Sensitive

Income Based Repayment Plan (IBR)

Income Based Repayment is a way to make your federal student loan payments more manageable. IBR uses a sliding scale based on your income and family size. Generally, 10 percent of your discretionary income if you're a new borrower on or after July 1, 2014, but never more than the 10-year Standard Repayment Plan amount. Generally, 15 percent of your discretionary income if you're not a new borrower on or after July 1, 2014, but never more than the 10-year Standard Repayment Plan amount. For the IBR Plan, you're considered a new borrower on or after July 1, 2014, if you had no outstanding balance on a William D. Ford Federal Direct Loan (Direct Loan) Program loan or Federal Family Education Loan (FFEL) Program loan when you received a Direct Loan on or after July 1, 2014. (Because no new FFEL Program loans have been made since June 30, 2010, only Direct Loan borrowers can qualify as new borrowers on or after July 1, 2014.) Any remaining debt will be forgiven after 25 years of on-time IBR payments.

All Stafford, PLUS, and Consolidation Loans made under either the Direct Loan or FFEL Program are eligible for repayment under IBR, except loans that are currently in default, parent PLUS Loans, or Consolidation Loans that repaid parent PLUS Loans. The loans can be new or old, and for any type of education (undergraduate, graduate, professional, job training).

You may enter IBR if your federal student loan debt is high relative to your income and family size. While your loan servicer will perform the calculation to determine your eligibility, you can use the U.S. Department of Education’s Federal Student Loan Repayment Calculator to estimate whether you would likely qualify for the IBR plan.

Pay As You Earn Repayment Plan (PAYE)

The Pay As You Earn Repayment Plan helps keep your monthly student loan payments affordable, and usually has the lowest monthly payment amount of the repayment plans that are based on your income and family size.  Payments are generally 10 percent of your discretionary income, but never more that the 10 year Standard Repayment Plan amount. If you need to make lower monthly payments, this plan may be for you. This repayment plan has a lower payment cap than the Income Based Repayment Plan and provides forgiveness after 20 years of on-time, Pay As You Earn payments.

You must be a new borrower as of Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. You are a new borrower if you had no outstanding balance on a Direct Loan or FFEL Program loan as of Oct. 1, 2007, or had no outstanding balance on a Direct Loan or FFEL Program loan when you received a new loan on or after Oct. 1, 2007. Use the Federal Student Loan Repayment Calculator to see if this plan is right for you.

Revised Pay As You Earn Repayment Plan (REPAYE)

The Revised Pay As You Earn Repayment Plan caps regular monthly payments at 10% of your discretionary income or, if married, 10% of your combined discretionary income. REPAYE will forgive remaining debt after 20 years for those who borrowed only for undergraduate study and 25 years for those who borrowed for graduate study.

Under the REPAYE plan, if your calculated monthly payment doesn’t cover all of the monthly interest that accrues on your loans, then the government provides an interest subsidy benefit. For subsidized loans under the REPAYE plan, the government will pay 100% of the accrued interest for the first three consecutive years of repayment and 50% of the remaining interest after that. For unsubsidized loans under REPAYE, you only have to pay 50% of the accrued interest for the full repayment period.

For example, if the monthly interest that accrues on your subsidized loans is $40, but your monthly REPAYE Plan payment covers only $25 of this amount, then the government will pay the remaining $15 for the first three consecutive years from the date you began repaying your loans under the REPAYE Plan, and will pay $7.50 of the remaining $15 in interest after this three-year period. If the monthly interest that accrues on your unsubsidized loans is $30, but your monthly REPAYE Plan payment covers only $20 of this amount, the government will pay $5 of the remaining $10 in interest during all periods.

All Stafford, graduate/professional PLUS loans, and Consolidation loans made under the Federal Direct Loan Program are eligible for repayment under REPAYE no matter when the loans were first borrowed. Federal Perkins Loans and any loan made under the FFEL Program must be consolidated into the Direct Loan program to qualify. Parent PLUS loans or Consolidation loans that repaid parent PLUS loans do not qualify. Use the Federal Student Loan Repayment Calculator to see if this plan is right for you.

Income Contingent Repayment Plan (ICR)

Income Contingent Repayment is available if you need to make lower Direct Loan payments, but you do not qualify for the Income Based Repayment Plan or Pay As You Earn plans. Federal Family Education Loan (FFEL) and parent PLUS loans (unless consolidated into a Direct Consolidation Loan on or after July 1, 2006) are not eligible. Under this plan, your monthly payments are made for a maximum of 25 years and based on your adjusted gross income, your family size, and the total amount of your Direct Loans and the lesser of the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that changes with your annual income or 20 percent of your monthly discretionary income. Use the Federal Student Loan Repayment Calculator to see if this plan is right for you.

Income Sensitive Repayment

Income Sensitive Repayment is an income-driven repayment plan available to borrowers who have Subsidized or Unsubsidized Federal Stafford Loans, parent or graduate/professional PLUS Loans or Consolidation Loans made under the Federal Family Education Loans (FFEL) Program. Loans made under the Federal Direct Loan Program are not eligible. Under this plan, your monthly payments increase or decrease based on your annual income and are made for a maximum period of 10 years.

If you have loans owned by the U.S. Department of Education, contact your loan servicer. If you have FFEL program loans that are not owned by the U.S. Department of Education, contact your lender. If you are unsure who is the lender or loan servicer for your federal student loans, visit the National Student Loan Data System (NSLDS) to find out.