Is an Income-Driven Repayment Program Right for You?


If you have federal student loans, you may be eligible for an income-driven repayment plan. With these plans, your monthly payment is based on your income and family size. But income-driven repayment programs come with pros and cons. Let’s look at how they work and when they might be a good choice.  

How do income-driven repayment plans work?  

Income-driven repayment plans can help lower your monthly payment. With income-driven repayment programs, monthly payments may be as low as $0. They also extend the length of your loan, which means you’ll pay more in interest over the life of the loan. 

There are four different income-driven repayment plans:  

  1. Income-Based Repayment (IBR) 
  1. Pay As You Earn (PAYE) 
  1. Revised Pay As You Earn (REPAYE) 
  1. Income-Contingent Repayment (ICR) 

If you’re not sure which plan is right for you, you can try the repayment estimator tool on To see if you qualify for an income-driven repayment plan, you’ll need to provide information about your loans and income. Also, if you’re pursuing student loan forgiveness through the Public Service Loan Forgiveness (PSLF) program, you will need to be enrolled in an income-driven repayment plan. 

If you qualify for an income-driven repayment plan, you must submit a new application each year. Your monthly payment will be recalculated based on your updated income and family size.  

Is refinancing a better option? 

There’s a lot to consider regarding student loan repayment options. If you’re struggling to make your monthly payments, you may be wondering if refinancing is a better option than an income-driven repayment program.  

While both options have their pros and cons, with student loan refinancing, you may be able to get a lower interest rate and save money over the life of your loan. However, with refinancing you’ll no longer be eligible for certain federal benefits, like deferment and forbearance. You also won’t be eligible for any income-driven repayment plans once you’ve refinanced with a private lender. 

If you have a high income and would not necessarily qualify for an income-driven repayment program or your payments would be lower if you refinance, refinancing might be the right move.  

If you’re unemployed or underemployed 

If you’re struggling to keep up with your student loan payments, income-driven repayment plans may be a good option. These repayment plans base your monthly payment on your income, so if you’re unemployed or underemployed, your payment could be as low as $0. And if you’ve already exhausted your eligibility for the unemployment deferment, economic hardship deferment or forbearance, income-driven repayment plans may be your best option.  

If you anticipate being able to pay the loan off quickly later 

Federal student loans are deferred if you’re in school at least half-time. But if you’re in school less than half-time and working toward a degree that could come with a big pay increase, an income-driven repayment program might make sense. It’s important to weigh the pros and cons of paying more toward the principal now vs. paying more in interest later when you’re making a larger salary. 

If you’re unsure what’s best for you, consider talking to a financial advisor or student loan repayment expert. The student loan experts at GradFin, for example, are available for a free consultation to help you understand your options for student loan forgiveness, refinancing, or a combination of both. Finding a loan specialist or advisor can help your make informed decisions about managing your loans, repaying them faster, and achieving your financial goals. 

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