Student Loan Repayment Plans: IBR vs PAYE vs REPAYE vs SAVE

All IDR plans share a common structure: your monthly payment is based on income and family size, not loan balance. Four major plans:

1. Income-Based Repayment (IBR): the original IDR plan. Two versions: "old IBR" (pre-July 2014 borrowers) pays 15% of discretionary income for 25 years. "New IBR" (post-July 2014) pays 10% for 20 years.
2. Pay As You Earn (PAYE): 10% of discretionary income, 20-year forgiveness. Only available to "new borrowers" as of October 1, 2007 who received a disbursement on or after October 1, 2011.
3. SAVE (Saving on a Valuable Education): the Biden administration's replacement for REPAYE, effective 2023-2024. 5% of discretionary income for undergraduate loans, 10% for graduate. 20-year forgiveness for undergrad, 25 for graduate. Higher income exemption ($32,805 for single filers). Currently blocked by court injunction as of 2024 — borrowers enrolled in SAVE have been placed in forbearance.
4. Income-Contingent Repayment (ICR): the oldest and least generous plan. 20% of discretionary income or a 12-year fixed payment adjusted for income, whichever is lower. 25-year forgiveness. The only IDR plan available for Parent PLUS loans (via consolidation).

All IDR plans define "discretionary income" as the difference between your Adjusted Gross Income (AGI) and a percentage of the Federal Poverty Level (FPL) for your family size.

The formula varies by plan:

• IBR, PAYE, ICR: discretionary income = AGI minus 150% of FPL
• SAVE: discretionary income = AGI minus 225% of FPL (much more generous — protects more income from payment calculation)

2026 Federal Poverty Level (approximate, for 48 contiguous states):

• 1 person: $15,060
• 2 people: $20,440
• 3 people: $25,820
• 4 people: $31,200

So for a single filer earning $50,000:

• IBR/PAYE: discretionary = $50,000 - (150% × $15,060) = $50,000 - $22,590 = $27,410
• SAVE: discretionary = $50,000 - (225% × $15,060) = $50,000 - $33,885 = $16,115

Then the plan applies its percentage to discretionary income:

• IBR (new): 10% × $27,410 ÷ 12 = $228/month
• PAYE: 10% × $27,410 ÷ 12 = $228/month
• SAVE (undergrad): 5% × $16,115 ÷ 12 = $67/month

The SAVE plan would produce the lowest payment by far — roughly 70% less than IBR/PAYE — because of both the higher income exemption AND the lower payment percentage.

Each plan forgives remaining balance after a specified number of qualifying payments:

• IBR (new): forgiveness after 20 years (240 payments)
• IBR (old): forgiveness after 25 years (300 payments)
• PAYE: forgiveness after 20 years (240 payments)
• SAVE: forgiveness after 20 years (undergraduate) or 25 years (graduate)
• ICR: forgiveness after 25 years (300 payments)

Tax treatment of forgiven balances:

• Through 2025: IDR forgiveness is tax-free under the American Rescue Plan Act of 2021
• After 2025: unless Congress extends the tax-free treatment, forgiven balances will be treated as taxable income (creating a potential "tax bomb" in the forgiveness year)
• PSLF (Public Service Loan Forgiveness): always tax-free after 10 years (120 payments) for qualifying public service or nonprofit employees

The "tax bomb" issue is real. A borrower with $200,000 forgiven in year 20 could face a $50,000+ federal tax bill if the forgiveness is taxable. Planning for this is essential for high-balance IDR borrowers.

The SAVE plan was introduced in 2023 as the most generous IDR plan ever offered. Key features:

• 5% of discretionary income for undergraduate loans (vs 10% for other plans)
• 225% of FPL income exemption (vs 150%)
• No interest capitalization when payments don't cover interest
• Borrowers with original principal under $12,000 eligible for forgiveness after 10 years

However, multiple states challenged SAVE in court, and in 2024 federal courts blocked the plan's implementation. As of early 2026, the SAVE plan's future is uncertain:

• Borrowers enrolled in SAVE have been placed in administrative forbearance (no payments required, no progress toward forgiveness)
• The Trump administration has signaled it will not defend the SAVE plan in court
• Congress could legislate a new plan or modify existing ones
• Borrowers in forbearance should monitor for resolution and may need to switch to IBR or PAYE

For planning purposes, do NOT assume SAVE will be available long-term. Use IBR (new) or PAYE as your baseline plan, with SAVE as upside if the legal situation resolves favorably.

• New borrower (post-2014), undergraduate loans: PAYE or SAVE (if available). Both offer 10% / 20-year forgiveness. SAVE has lower payments when active.
• New borrower, graduate loans: PAYE for 20-year forgiveness (vs IBR's 20 years or SAVE's 25 years for graduate). PAYE has the shortest forgiveness for graduate borrowers.
• Old borrower (pre-2014): old IBR (15% / 25 years) is the only IDR option unless you consolidate into a Direct loan, which may reset your payment count.
• Public service employee: any IDR plan + PSLF. Choose the plan with the lowest monthly payment (SAVE when available, then PAYE) to maximize the amount forgiven at 10 years.
• Parent PLUS loan: ICR is the only IDR option (requires consolidation into Direct loan first). 20% of discretionary income, 25-year forgiveness.
• High income, low balance: standard 10-year repayment is often cheaper than IDR. IDR plans cap payments at the standard 10-year payment amount, so high earners may pay the same either way.

Public Service Loan Forgiveness (PSLF) forgives remaining federal student loan balance after 120 qualifying payments (10 years) while working full-time for a qualifying public service or nonprofit employer. PSLF forgiveness is always tax-free.

Qualifying employers:

• Federal, state, local government (including military)
• 501(c)(3) nonprofit organizations
• Some tribal organizations
• NOT for-profit companies, regardless of their "mission"

Requirements:

• Direct loans only (FFEL and Perkins must be consolidated)
• Enrolled in an IDR plan (or the standard 10-year plan, but IDR maximizes forgiveness)
• 120 qualifying payments (do not need to be consecutive)
• Full-time employment (30+ hours/week) at qualifying employer at time of each payment

Strategy for PSLF: choose the lowest-payment IDR plan to minimize what you pay over 10 years, then maximize forgiveness. For a borrower with $150,000 in loans earning $50,000 at a nonprofit, PSLF can forgive $100,000+ in loans that would otherwise take 20-25 years on IDR.