An income-driven repayment (IDR) plan ties your federal student loan repayment to what you earn, instead of what you owe. Depending on your income and family situation, IDR plans can cut what you owe substantially.
Options for federal student loans narrowed on July 1, 2026, when the One Big Beautiful Bill Act went into effect. Two IDR plans remain: income-based repayment (IBR) for existing borrowers, and the new Repayment Assistance Plan (RAP) for those borrowing since July. Which one you’re eligible for depends on when your loans were disbursed.
Types of income-driven repayment plans
Federal student loan repayment options changed substantially in 2026. Which plans you can use depends on your loan type and when your loans were disbursed.
Repayment Assistance Plan (RAP)
The Repayment Assistance Plan is the only income-driven plan for loans disbursed on or after July 1, 2026. Payments run from 1% to 10% of your adjusted gross income, and each dependent you claim lowers your monthly payment by $50. RAP also requires a $10 monthly minimum.
Under some repayment plans, a payment that doesn't cover the month’s interest adds the unpaid part to your balance, so you can pay for years and potentially owe more than you started with (also called negative amortization). RAP is built to prevent that: It waives interest your payment doesn’t cover, and it adds a matching principal benefit so your balance actually declines.
If all of your Direct Loans were first disbursed before July 1, 2026, you can choose to switch to RAP.
PAYE (Pay As You Earn)
PAYE generally sets your payment at 10% of discretionary income, up to what you'd pay under a 10-year Standard Repayment Plan. Forgiveness is available after 20 years of qualifying repayments.
PAYE has specific borrower and loan-date requirements and is limited to eligible loans disbursed before July 1, 2026. The plan is scheduled to end in mid-2028, so borrowers may need to change plans eventually.
IBR (Income-Based Repayment)
IBR generally requires payments of 10% to 15% of discretionary income depending on when you first borrowed. Payments are capped at what you’d owe on the 10-year standard plan.
Depending on when you became a borrower, the repayment period is generally 20 or 25 years. Most eligible Direct and Federal Family Education Loan (FFEL) Program loans must have been disbursed before or on July 1, 2026.
ICR (Income-Contingent Repayment)
ICR payments are generally the lesser of 20% of discretionary income or the amount you'd pay under a fixed 12-year repayment schedule adjusted for income. The repayment period is 25 years.
Like PAYE, ICR is scheduled to end in mid-2028.
What happened to SAVE?
The Saving on a Valuable Education (SAVE) plan ended following a federal court order in March 2026. If you’re enrolled in SAVE or have a pending application, you must select another repayment plan.
If you haven’t yet received notice to switch, call your loan servicer for instructions.
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How income-driven repayment plans lower your monthly payment
Traditional repayment plans generally calculate your payment based on how much you borrowed, your interest rate, and the repayment period. IDR plans take your income into account, which can result in a lower required payment.
Your payment can change as your income changes, and you generally need to update your income information regularly so your payment can be recalculated.
How your payment amount is calculated
The calculation depends on your plan. Under older IDR plans, such as PAYE and IBR, payments are generally based on a percentage of your discretionary income, rather than your total income.
RAP works differently. Your payment is based on a percentage of your adjusted gross income (AGI), ranging from 1% to 10%, depending on income, with a reduction of $50 per dependent claimed on your federal tax return. The minimum monthly payment is $10, regardless of dependents and other factors.
How discretionary income is defined
For PAYE and IBR, discretionary income is generally the difference between your AGI and 150% of the federal poverty guideline for your family size and location. ICR uses a different calculation based on income above the poverty guideline.
This matters because only the income above that threshold is used in the percentage calculation. As a result, two borrowers with the same student loan balance could have different payments.
RAP doesn't use this discretionary-income formula. Instead, it calculates payments directly from AGI.
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Who qualifies for income-driven repayment?
IDR plans are designed for federal student loans, not private student loans. Eligibility depends on your loan type, disbursement date, and the specific plan.
Many Direct Loan borrowers qualify for RAP, while IBR, PAYE, and ICR generally apply to qualifying loans disbursed before July 1, 2026. Parent PLUS loans no longer have any income-driven option: The window closed on June 30, 2026, and the new RAP plan excludes Parent PLUS borrowers entirely, leaving fixed-payment plans that don’t adjust to income. And defaulted federal loans aren't eligible for IDR unless you first take steps to get the loans out of default.
Review your loan types and disbursement dates through your StudentAid.gov account.
How to apply for an income-driven repayment plan
Sign in to your federal student aid account at StudentAid.gov and use the repayment calculator to compare available plans. Review estimated payments and determine which plans your loans qualify for.
When you apply, you may need to authorize access to federal tax information to verify your income. Depending on the situation, you might also need to submit other income documentation, including annual income updates, to confirm you’re still eligible.
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Trade-offs to consider before enrolling
A smaller required payment can give you breathing room in your monthly budget, but don't choose a plan based on payment amount alone.
Lower payments but longer repayment timeline
Paying less each month often means longer repayment periods. Depending on your plan, you might end up making qualifying payments for 20 to 30 years before you’re eligible for forgiveness of the remaining balance.
Interest accumulation
A lower payment might not cover all the interest your loans accrue. Depending on your plan's interest rules, this can affect how quickly your balance declines.
RAP offers protection by subsidizing unpaid monthly interest when you make your required payment. It also provides a matching principal payment in certain circumstances.
Tax implications of forgiveness
IDR forgiveness can have tax consequences. Depending on the tax rules in effect when your debt is discharged, forgiven student loan debt may be treated as taxable income at the federal or state level.
Check the rules that apply when you're approaching forgiveness rather than assuming today's tax treatment will still apply years from now. And talk to a financial advisor or tax professional for guidance specific to your situation.
Heads up: Forgiven balances are taxable again. The federal tax exclusion on student loan forgiveness expired at the end of 2025. IDR balances forgiven in 2026 or later generally count as taxable income at the federal level — and state treatment varies on top of that. Ask a tax professional about your state’s laws before you plan around a forgiveness date.
How income-driven repayment affects your credit
Enrolling in an income-driven repayment plan doesn't hurt your credit. However, your federal student loans remain part of your credit history, and how you manage them can affect your credit. Missed payments can negatively affect your credit history.
If an IDR plan helps you make your payments on time, the advantage is avoiding missed or delinquent payments.
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Choose a plan that fits your circumstances
Income-driven repayment plans can help lower student loan payments by connecting what you owe each month to your financial circumstances. But the federal repayment system changed significantly in 2026, so it’s especially important to confirm which plans are currently available for your loans.
Compare your options through StudentAid.gov before switching plans, and weigh immediate monthly savings against potential long-term costs.
Managing your student debt is one part of building a stronger financial foundation. Kikoff's Credit Account reports your on-time payments to the major credit bureaus, building history alongside the loans you're already repaying. No hard credit check required.
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Disclaimer: The information provided in this blog post is meant for informational purposes only and does not constitute financial advice.
