Lana Oconnell
Income-driven repayment plans for student loans are designed to make monthly payments more affordable by adjusting payments according to income. However, these plans can also result in paying more interest over time, as the repayment term is extended, and interest accrues. The Saving on a Valuable Education (SAVE) plan is a popular income-driven repayment plan that caps monthly payments at a portion of the borrower's income and forgives remaining debt after a certain number of payments. However, due to legal challenges, the SAVE plan has been blocked, and borrowers cannot enroll as of spring 2025. Borrowers previously enrolled in the SAVE plan are in forbearance, with interest accruing as of August 1, 2025. Other income-driven repayment plans, such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR), are also available but may have varying eligibility requirements and benefits.
| Characteristics | Values |
|---|---|
| Interest accrual | Interest accrues on income-driven student loan payments, but the SAVE plan previously allowed borrowers to be in a zero percent interest rate status. |
| Interest capitalization | Any interest will typically be capitalized, or added to the principal balance, if the recertification deadline is missed. |
| Repayment term | Income-driven plans can extend the repayment term from the standard 10 years to 20 or 25 years, resulting in more interest accruing on the loans. |
| Loan forgiveness | Public Service Loan Forgiveness (PSLF) is available for those in eligible public service jobs, and the SAVE plan previously offered loan forgiveness after a set number of payments. |
| Payment calculation | Payment amounts are typically calculated based on income, with payments capped between 5% and 10% of income under the SAVE plan. |
| Recertification | Recertification of income and family size is required annually, and servicers will alert borrowers 3 months in advance of the deadline. |
| Application | Applications for income-driven repayment can be submitted online at studentaid.gov or by sending a paper request form to the federal student loan servicer. |
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What You'll Learn
Interest accrual on the Saving on a Valuable Education (SAVE) plan
The Saving on a Valuable Education (SAVE) plan is an income-driven repayment plan for student loans. It was created under the Biden administration and was considered the most generous student loan repayment plan available to borrowers. The SAVE plan capped borrowers' monthly federal student loan bills at a portion of their income and forgave remaining debt after a set number of payments.
However, the SAVE plan was struck down as illegal by the 8th U.S. Circuit Court of Appeals in February 2025. As a result, borrowers enrolled in the plan had their federal student loans placed in forbearance with a zero per cent interest rate. This forbearance period, which began in the summer of 2024, allowed borrowers to pause their payments without accruing interest.
Despite the legal challenges, the Education Department announced in July 2025 that interest accrual for student loan borrowers on the SAVE plan would restart on August 1, 2025. This decision was made to comply with a federal court injunction that blocked the implementation of the SAVE plan, including the Department's action to put SAVE borrowers in a zero per cent interest rate status.
With the restart of interest accrual, borrowers' loan balances will begin to rise, even though they will not be responsible for making payments until the forbearance ends. The Education Department is urging borrowers to choose a new repayment plan before restarting payments. Borrowers who were enrolled in the SAVE plan will need to switch to a different repayment option, such as the standard repayment plan or the Repayment Assistance Plan.
It is important to note that interest accrual on student loans can significantly increase the overall cost of the loan. Borrowers who remain in the SAVE plan will see their loan balances grow as interest accrues, and they will be responsible for repaying the accrued interest and their principal amounts when the forbearance ends.
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Loan forgiveness
If you have a federal student loan, you may be able to enroll in an income-driven repayment (IDR) plan. IDR plans cap your monthly payments based on your income and family size. Depending on the plan, your remaining loan balance may be forgiven after 20 or 25 years of repayment. For some borrowers, loans will be canceled in as little as 10 years.
There are four IDR plans: SAVE, PAYE, IBR, and ICR. Each plan has different requirements and forgiveness periods. For example, if you borrowed $12,000 or less in principal on your loans, your remaining balance will be canceled after 10 years of payments under the SAVE plan. On the other hand, if all the loans you're repaying under the PAYE plan were for undergraduate education and you borrowed more than $21,000, your loans will be forgiven after 20 years of payments.
It's important to note that you may pay more interest over time with IDR plans as they extend your repayment term. Additionally, loan forgiveness is only available for federal student loans. If you refinance your federal student loans with a private lender, you will lose access to loan forgiveness.
Public Service Loan Forgiveness (PSLF) is another option for loan forgiveness. PSLF forgives the remaining debt on qualifying federal student loans after 120 qualifying payments (10 years) while working for a qualifying public service employer. Qualifying employers include government, U.S. military, state, local, tribal, or certain non-profit organizations.
To enroll in an IDR plan, you can apply online at studentaid.gov or by contacting your federal student loan servicer and sending them a paper request form. You will need to provide information about your family size and income.
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Loan repayment options
There are several options available to repay your student loans. You can choose an income-driven repayment plan, which calculates your monthly payments based on your income. This option can be beneficial if you have a lower income, as it can make your monthly payments more affordable. However, one of the disadvantages of this plan is that you may pay more interest over time since income-driven plans can extend your repayment term.
Alternatively, the federal government offers extended repayment and graduated repayment plans that lower your payments but are not based on your income. While these plans can reduce your monthly payments, you may pay more interest, and they do not offer loan forgiveness. Another option is to refinance your student loans with a private lender, which could reduce your monthly payments, but it can be risky as you'll lose access to federal loan benefits such as income-driven repayment and loan forgiveness.
If you're unsure which plan is right for you, you can use Federal Student Aid's Loan Simulator to get an estimate of your monthly bills, overall costs, and forgiveness amounts under each plan. Additionally, you can apply for income-driven repayment at studentaid.gov or by contacting your federal student loan servicer. Remember that you can change your student loan repayment plan at any time, and it's important to consider your financial situation and goals when choosing a repayment option.
It's worth noting that if your income changes, your payments may also change. Staying on top of deadlines is crucial, as missing the recertification deadline can temporarily increase your payments. Interest accrues on your loan during periods of forbearance, and any unpaid interest is typically capitalized and added to your principal balance. Servicers will notify you ahead of time, and you must submit your income information 35 days before the deadline.
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Loan cancellation
If you have a federal student loan, you may be able to enroll in an income-driven repayment (IDR) plan online. IDR plans can make monthly student loan payments more affordable, but they do have some potential disadvantages. One of the main disadvantages is that you'll pay more interest over time. Since income-driven plans can extend your repayment term, more interest will accrue on your loans. This means that you might pay more under these plans in the long run, even if you qualify for forgiveness.
Before enrolling in any income-driven plan, it's important to consider the potential disadvantages. In addition to paying more interest, you may also have to make payments for a longer period of time. If you miss the recertification deadline, you'll have to pay more until you re-enroll. Additionally, refinancing federal student loans can be risky, as you may lose access to programs like income-driven repayment and loan forgiveness.
However, there are also benefits to enrolling in an IDR plan. If you have a federal student loan, your payments under an IDR plan may count toward Public Service Loan Forgiveness (PSLF). This program can forgive your remaining student loan debt after 10 years of working in an eligible public service job. To qualify for PSLF, you must have made 120 qualifying payments and work for a qualifying employer.
To apply for an IDR plan, you can visit studentaid.gov or contact your federal student loan servicer. You will need to provide information about your family size and your most recent federal income tax return or transcript. If you didn't file taxes, you can submit alternate proof of any taxable income you've earned within the past 90 days. Your servicer can put your loans in temporary forbearance while processing your application, during which time you are not required to make payments. However, interest will continue to accrue on your loan.
It's important to carefully consider your options and understand the potential risks and benefits before enrolling in any repayment plan. You can use Federal Student Aid's Loan Simulator to get an idea of your monthly bills, overall costs, and forgiveness amounts under each plan. Additionally, you can seek advice from a financial professional to determine the best course of action for your specific situation.
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Loan repayment term
The standard repayment term for student loans is typically 10 years, but this can be extended to 15, 20, or 25 years depending on the loan balance. The longer the repayment term, the more interest will accrue on the loan, increasing the overall cost.
Income-driven repayment plans can also extend the repayment term from the standard 10 years to 20 or 25 years. This means that, despite lowering your monthly payments, you may end up paying more under these plans in the long run due to the accrued interest.
It is important to note that the standard plan will change starting in 2026, and borrowers with new federal student loans will not have access to income-driven repayment plans. Instead, they will have access to the modified standard plan and the Repayment Assistance Plan (RAP), which offers forgiveness of remaining debt after 30 years of payments.
Additionally, there are other repayment options available, such as extended repayment and graduated repayment plans, which are not based on income but can lower monthly payments. However, these plans may also result in paying more interest over time.
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Frequently asked questions
An income-driven repayment plan is a repayment plan for student loans that is based on your income. There are several types of income-driven repayment plans, including IBR, PAYE, REPAYE, and the newest plan, SAVE.
You can apply for an income-driven repayment plan at studentaid.gov or by contacting your federal student loan servicer and sending them a paper request form. You will need to provide information about your family size and your most recent federal income tax return or transcript.
Income-driven repayment plans can make monthly student loan payments more affordable. Payments under every income-driven plan count toward Public Service Loan Forgiveness, which can forgive your remaining student loan debt after 10 years in an eligible public service job.
This depends on the type of income-driven repayment plan you are on. Under the SAVE plan, interest not covered by your payment is waived. However, due to court cases challenging the SAVE plan, interest started accruing on this plan on August 1, 2025. Under other income-driven repayment plans, you will pay more interest over time as repayment terms are extended, meaning that interest accrues for longer.
