Breaking News
Since March 26, the U.S. Department of Education swung the doors wide open again for applications to the Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR) plans. However, the SAVE program and the dormant Revised Pay As You Earn plan are still off-limits, branded “illegitimate” by the previous administration. Acting Under Secretary James Bergeron revealed that the reissued applications underwent tweaks to align with a February ruling from the 8th Circuit Court of Appeals.
Essential Highlights
- Sign-ups for PAYE and ICR repayment routes have resumed.
- Borrowers currently enrolled in the Saving on a Valuable Education (SAVE) plan can either stick with it while remaining on administrative forbearance or switch to an alternative scheme.
- Due to ongoing legal battles, the processing of student loan forgiveness through these three plans remains suspended.
In December, the Department declared it was reviving two retired repayment options. During the forbearance period tied to this revival, monthly payments are paused and interest stops piling up — yet, these months don’t count towards certain forgiveness programs, like Public Service Loan Forgiveness (PSLF). When borrowers opt for a fresh plan enrollment, their payments kick back in and those payments do tally towards eventual loan forgiveness. Nevertheless, it’s crucial to note that loan forgiveness under PAYE and ICR is currently halted as well.
The Landscape of Student Loan Repayment Plans
Born in 1996 and 2012, these two income-driven repayment plans were originally scheduled to phase out by summer 2024, replaced by the SAVE plan. For most borrowers, sticking with PAYE or ICR will mean larger monthly bills compared to SAVE’s softer approach.
Pay As You Earn (PAYE)
This plan trims your federal student loan bill down to either 10 percent of your discretionary income or the fixed amount you’d pay over 20 years—whichever figure is smaller. (Note that PAYE bases discretionary income on the difference between your yearly earnings and 150 percent of the poverty threshold.)
Income-Contingent Repayment (ICR)
ICR tackles repayment differently. Here, your “discretionary income” means the gap between your annual earnings and the poverty guideline at 100 percent, making a larger chunk of your income count as flexible. Up to $15,060, single borrowers owe nothing, but beyond that mark, 20 percent kicks in.
In plain speak, ICR tends to snag a heftier share of your income than PAYE.
ICR stands apart as the sole choice available to parent PLUS loan holders, where you might shell out as little as 5 percent of discretionary income. This plan’s take on discretionary income is the most generous: it’s the difference between your yearly paycheck and 225 percent of the poverty line. Singles with up to $32,800 in income pay zilch, while incomes beyond that can expect to cough up between 5 and 10 percent, depending on original loan amounts.
Side-by-Side: A Quick Comparison of Repayment Schemes
| PAYE | 10% of discretionary income | 20 years | Yes | Direct loans or consolidated FFEL loans received after October 1, 2007 |
| ICR | Lower of 20% discretionary income or 12-year fixed payment amount (adjusted) | 25 years | Yes | Direct loans, direct PLUS loans, direct consolidation loans (including parent loans) |
| SAVE | 5-10% of discretionary income | 20 years (undergrad), 25 years (grad), 10 years if balance under $12,000 | Yes | Direct loans, direct PLUS loans, direct consolidation loans (excluding parent loans), FFEL, Perkins (if consolidated) |
Mid-Text Fact Snippet
According to the Department of Education, over 42 million Americans hold federal student loans, with a collective balance exceeding $1.7 trillion as of 2023. Income-driven repayment plans currently assist approximately 10 million borrowers in managing their monthly payments.
Should You Jump Ship or Stay Put?
For now, sticking with the SAVE plan and the extended payment freeze could be the safer harbor. Still, financial pundits warn that the then-incoming administration might axe the SAVE plan or withdraw backing from ongoing court cases. Even if you decide against switching lanes today, keeping tabs on alternatives is wise — future flexibility may save you headaches.
If you’re on solid footing to meet your repayment obligations and want to inch closer to loan forgiveness milestones, exploring different plans might be worth a shot. For instance, some borrowers have the option to “repurchase” months of qualifying payments to shore up their forgiveness clock. This involves submitting a request and paying a sum equal to your regular monthly payment times the number of months you want credited. Picture this: if your loan was paused under forbearance for two months and your monthly dues are $150, buying back those two months means forking over $300.
One crucial note: these income-driven plans cater exclusively to federal student loans. If you hold private loans, adjusting terms or payments means negotiating directly with your lender. While refinancing federal loans is an option, it’s generally discouraged because you forfeit perks like income-based monthly payment calculations and eligibility for forgiveness.
How to Jump Aboard PAYE or ICR
Those yet to enroll in an income-driven repayment program or wanting to switch gears can apply online at studentaid.gov. You’ll need a handful of things ready:
- Your studentaid.gov login credentials.
- A verified Federal Student Aid (FSA) ID.
- Financial documentation, including recent tax returns.
- Personal contact and identifying info.
- Spousal info, if applicable.
- Approximately 10 minutes to complete the application.
The Education Department notes that borrowers’ applications may trigger automatic forbearance for up to 60 days while their loan servicer processes the paperwork. During this interval, no payments are demanded and interest halts accumulation. Unlike SAVE’s forbearance period, however, this time frame counts towards loan forgiveness qualification.