Income-Based Repayment: How It Works and Whom It’s Best For

Student loan borrowers often use the term “income-based repayment” to describe income-driven repayment plans that can lower monthly bills based on income and family size. But Income-Based Repayment (IBR) is actually one of four such plans known collectively as income-driven repayment (IDR) plans. IBR is potentially the most complicated of the bunch.

» MORE: How student loan income-based repayment is calculated

Income-Based Repayment is unique because its features change depending on whether you took out your loans before July 1, 2014, or from that date on. Borrowing before that date will qualify you for Old IBR, which caps payments at 15% of your discretionary income and forgives your loans after 25 years of payments. New IBR improves on those numbers, shrinking them to 10% and 20 years, respectively.

Old IBR at a glance:

• Repayment length: 25 years.

• Payment amounts: 15% of your discretionary income.

• Other qualifications: Must have federal student loans.

• Best for: Borrowers with FFELP loans.

New IBR at a glance:

• Repayment length: 20 years.

• Payment amounts: 10% of your discretionary income.

• Other qualifications: Must have federal direct loans.

• Best for: Borrowers who don't qualify for Pay As You Earn (PAYE).

Is IBR right for you?

If you qualify for New IBR — meaning you took out loans on or after July 1, 2014 — this plan is usually the best income-driven option for you in the following instances:

• You don’t also qualify for PAYE.

• You don’t expect your income to increase much over time.

• You have grad school debt.

• You’re married, and you and your spouse both have incomes.

» MORE: Income-driven repayment: Is it right for you?

IBR vs. other income-driven plans

All income-driven plans share some similarities: Each caps payments at between 10% and 20% of your discretionary income and forgives your remaining loan balance after 20 or 25 years of payments. In July 2024, those figures will shift as the full changes of the Saving on a Valuable Education or SAVE plan take effect. Payments will be 5% of discretionary income, while 10-year loan forgiveness will be on the table for those with loan balances of $12,000 or less.

Use Federal Student Aid's Loan Simulator to see how much you might pay under different plans.

If IBR doesn't sound right for you, consider one of the other three income-driven repayment plans: SAVE, Pay as You Go (PAYE) or Income-Contingent Repayment.

» MORE: How to get income-driven repayment forgiveness

In most cases, the least confusing way to select an income-driven plan is to let your servicer place you on the plan with the lowest monthly payment you qualify for. The plan that most federal direct loan borrowers qualify for is likely SAVE.

But specifically choosing IBR may be right for you in the following instances:

How to apply for Income-Based Repayment

You must enroll in Income-Based Repayment. You can do this by mailing a completed income-driven repayment request to your student loan servicer, but it’s easier to complete the process online. You can change your student loan repayment plan at any time.

• Visit studentloans.gov. Log in with your Federal Student Aid ID, or create an FSA ID if you don’t have one.

• Select income-driven repayment plan request. Preview the form so you know what documents to have ready, like your tax return.

• Choose your plan. If you qualify for more than one income-driven repayment plan, you can be automatically placed in the plan with the lowest payment or specifically choose IBR if it makes the most sense for you.

• Complete the application. Enter the required details about your income and family. Remember to include your spouse’s information, if applicable, as it will affect your payments under IBR.

» MORE: How to submit an income-driven repayment application

You can temporarily self-report income

Through December 30, 2023, borrowers can self-report their income when applying for or recertifying an income driven-repayment plan, according to the Education Department. That means you don't have to submit tax documentation when you report your income. This can be completed online when you submit the IDR application, as normal; in Step 2 of the application, select "I'll report my own income information."

» MORE: How to change student loan repayment plans

Other ways to pay less

If income-driven repayment isn't right for you, the federal government offers extended repayment and graduated repayment plans, which lower your payments but aren’t based on your income. You may pay more interest under these plans, though, and neither offers loan forgiveness.