Federal student loan borrowers can choose from several plans that may lower their payments and ultimately forgive part of their debt. Four forgiveness plans, which are known by their initials SAVE, PAY, REPAYE and IBR, set monthly payments based on borrowers’ discretionary income and family size. After making payments for a number of years, any remaining balance is forgiven. Each plan implements this basic approach differently. However, some borrowers may struggle to identify the best approach for their situation. If you are looking into ways to handle your student debt, consider working with a financial advisor.
Student Loan Forgiveness Basics
Federal education borrowers are automatically enrolled in the Standard Repayment Plan when they leave school unless they choose another option. The Standard Repayment Plan calculates a monthly payment based on the loan amount, interest rate and a payoff date within 10 years. Borrowers who find the payments too burdensome aren’t stuck with their original plan. They may be able to switch to one of several student loan forgiveness programs.
Some forgiveness plans are income-based. These use the borrower’s discretionary income and family size to set monthly payments. This typically reduces the monthly payment, in some cases to zero, while extending the number of years payments are made. After making payments for the specified number of years, any remaining balance on the loan is forgiven.
Other features of income-driven repayment plans are:
- Only federal student loans are eligible for forgiveness. Private loans are not eligible.
- Borrowers have to update income and family size information with the loan servicer annually.
- Payment amounts can change if the borrower’s income or family size changes.
- Because of the longer time periods, income-driven repayment plan users are likely to pay more interest.
- Forgiven loan balances have to be reported to the IRS as income.
- Loan may be paid off before the end of the time period. In that case, there is no balance to forgive.
- Student loans in default are not eligible for forgiveness.
Available income-driven payment plans include:
- Income-Based Repayment (IBR)
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Saving on a Valuable Education (SAVE)
Each sets the payment based on discretionary income and family size and has a predetermined time period for making payments. Beyond that, they have different features that may make them more or less attractive to a given borrower. Here’s a table comparing key features followed by more detailed looks at each one’s pros and cons:
| Name | Basic Payment | Years of Payments |
| SAVE | 10% of discretionary income | 20 or 25 |
| PAYE | 10% of discretionary income | 20 |
| REPAYE | 10% of discretionary income | 20 or 25 |
| IBR | 10% or 15% of discretionary income | 20 or 25 |
SAVE Pros and Cons
The SAVE plan can be used for most federal direct subsidized and unsubsidized loans as well as Direct PLUS loans and Direct Consolidation Loans. Parent loans are not eligible. SAVE bases payments on 10% of the borrower’s discretionary income, the same as other income-driven repayment with the exception of some IBR borrowers.
SAVE uses a 20-year repayment plan for undergraduate loans. This also is the same as the time period for the other income-driven repayment plans, again except for some IBR users. However, if the borrower has graduate or professional loans, SAVE uses a 25-year time period that can require making payments for an additional five years.
Another SAVE feature is that the payment is always based on income and family size. This could mean if the borrower’s income increases the payment would be more than it would under the 10-year Standard Repayment Plan. Because of these SAVE features, borrowers who anticipate significant income increases or who have professional or graduate loans might consider one of the other plans.
PAYE Pros and Cons
Only new education borrowers can qualify for PAYE. This means they took out their first loan since on or after Oct. 1, 2007, and received a disbursement of a Direct Loan on or after Oct. 1, 2011. PAYE works with the same loan types as SAVE.
Like SAVE, PAYE bases payments on 10% of discretionary income. However, unlike SAVE, PAYE users with graduate and professional loans also use a 20-year timeline. This may make the PAYE plan more attractive than SAVE to borrowers with these types of loans, as long as they meet the new borrower criteria.
Another important PAYE feature is that, unlike SAVE, monthly payments will never be more than the 10-year Standard Repayment Plan amount. If the borrower’s income increases, payments may increase. However, they are capped at the Standard Plan amount. This could make PAYE more appealing to a borrower who expects their income to rise substantially.
IBR Pros and Cons
The same types of loans are eligible for IBR. It also bases payments on 10% of income and a 20-year timeline for many borrowers. Significant differences may apply in some cases, however.
For example, IBR borrowers may have a payment based on 15% instead of 10% of income if their loans were taken out before July 1, 2014. This could mean having to make a higher monthly payment than with the other plans.
Another IBR difference is that loans taken out before July 1, 2014, will be paid back under a 25-year timeline. This is five years longer than the other plan, with the exception of graduate and professional school borrowers using SAVE.
One IBR plus is that, like SAVE, it caps payments at the Standard Plan amount. As a result, borrowers who anticipate earning significantly higher income may find IBR more advantageous, as long as their loans were not taken out before July 1, 2014. Also, unlike PAYE, IBR does not require users to be new borrowers.
REPAYE Pros and Cons
REPAYE is the former name for the SAVE plan. Repayment plans set up under the former REPAYE plan have the same features as the SAVE plan. A borrower who began repaying a loan back under the REPAYE plan has the same pluses and minuses compared to the other plans.
Bottom Line
Federal education borrowers have several different plans available to help them repay their loans. SAVE, PAYE, IBR and REPAYE all based monthly payments on discretionary income and family size. Borrowers typically make payments based on 10% of income for 20 years, after which any remaining balance is forgiven. However, some borrowers using IBR may pay larger percentages of their income for longer periods, while some SAVE and IBR users will make payments for 25 years. Also, only the PAYE and IBR plans cap payments at the level of the Standard 10-year repayment plan.
Tips for Financial Planning
- A financial advisor can help you decide which student loan repayment plan fits your situation. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Use SmartAsset’s student loan calculator to find out what your education loan payments will be.
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