Income-Driven Repayment Plans

Income-Driven Repayment in 2026: What Has Changed

By Sanjesh G. Reddy, StudentLoanInfoZone Editor & Founder

Income-driven repayment (IDR) plans cap your monthly federal student loan payment at a percentage of your income, making payments manageable when your loan balance is high relative to your earnings. The IDR system is mid-overhaul. The SAVE Plan — which had enrolled millions of borrowers — was killed by a federal court order on March 10, 2026, and the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, replaces the entire multi-plan IDR system with a single new option for future borrowers. The plan you choose in the next 12 months sets your monthly payment, your total cost, and your forgiveness eligibility.

One IBR failure mode: a servicer recertifies a payment off the wrong filing status — using a married-filing-jointly AGI when a borrower had switched to or from filing separately. When that happens, the monthly payment can jump sharply for a borrower whose own income did not change. The fix is to submit an alternative documentation of income form with pay stubs reflecting the correct income.

The June version of this page told a $65,000 earner to expect about $290 a month under RAP and $210 under IBR. Both numbers were wrong. On August 10, 2026 I re-derived every payment figure here against ED's May 1 final regulations, the June 9 ICR factor table, and the 2026 HHS poverty guideline, and the corrected pair surprised me: $325 on RAP against about $342 on IBR. RAP is the cheaper plan at that income. The menu has shrunk, too. Since IBR launched in 2009 there were always four or five overlapping plans — ICR, IBR, PAYE, REPAYE, later SAVE. Loans first disbursed on or after July 1, 2026 get exactly one income-driven option, RAP, alongside a fixed Tiered Standard Plan, and borrowers on PAYE or ICR have until July 1, 2028, when both plans sunset. The real fork: 20 or 25 years to forgiveness on IBR against 30 on RAP.

How IDR Plans Work: The Core Mechanics

Every IDR plan shares the same basic structure: instead of dividing your total loan balance into equal monthly installments over 10 years (the Standard Repayment Plan), your servicer calculates a payment based on how much you earn. If your calculated payment is less than the interest accruing each month, the unpaid interest may be added to your balance (negative amortization) or, under certain plans, waived by the government. After a set number of qualifying payments — 20 to 30 years depending on the plan — any remaining balance is forgiven.

Discretionary Income vs. AGI: Why the Formula Matters

The single most important difference between older IDR plans and the new RAP is what income they measure. Under IBR, PAYE, and ICR, payments are based on discretionary income — your adjusted gross income (AGI) minus 150% of the federal poverty line for your family size. For 2026, HHS puts the poverty line at $15,960 for a one-person household in the lower 48; a single borrower shields $23,940 before the percentage applies. The guidelines move every January — verify your family size's threshold at studentaid.gov. A borrower earning $45,000 therefore has $21,060 counted as discretionary.

RAP abandons this approach entirely. The regulation reads a percentage straight off your AGI band: 1% for AGI of $10,000-$20,000, stepping up one point per band to 10% above $100,000, applied to total AGI with no poverty-line exclusion. Between roughly $30,000 and $70,000 the low bands undercut IBR's formula; below $30,000 IBR's exclusion drops payments toward zero while RAP's floor does not; above $100,000, the missing poverty-line shield and the 10% top band mean substantially higher payments than IBR or PAYE — with no cap tied to the Standard amount. Understanding this distinction is essential before you choose a plan.

Complete IDR Plan Comparison

The following table compares the IDR plans available to federal borrowers as of August 2026, with the terminated SAVE Plan included for context:

Source: Federal Student Aid, Income-Driven Repayment Plans; One Big Beautiful Bill Act, §82001 (2025), adding §455(q) to the Higher Education Act.

Worked Payment Examples: $45,000 Income, $35,000 in Loans

Here is what a single borrower earning $45,000 (AGI) with $35,000 in Direct Unsubsidized Loans at 6.39% — the 2025-26 undergraduate rate — would pay under each plan. The IBR, PAYE, and ICR figures use the 2026 poverty guideline; RAP needs none. Each shows its arithmetic, so you can re-run it with your own numbers.

IBR (New Borrower, Post-2014): $176/month

Discretionary income in this example = $45,000 minus the protected $23,940, leaving $21,060. Payment = 10% of that / 12 = $176/month. Forgiveness after 20 years. The 10-year Standard payment on $35,000 at 6.39% is about $396/month, so IBR sits well below the cap.

A servicer portal can label one plan while the official record shows another, with different rules. The distinction matters for married borrowers: some plans count a spouse's income when you file jointly while others use only your own, which can roughly double a payment. Verify your plan on studentaid.gov, not the servicer portal; the two can lag each other by weeks.

PAYE: $176/month

PAYE uses the same 10% of discretionary income formula as new-borrower IBR, producing an identical $176/month payment. The difference is PAYE's eligibility window (new borrower after October 1, 2007 with disbursement after October 1, 2011) and its 20-year forgiveness timeline. PAYE sunsets July 1, 2028, so this plan has a limited remaining enrollment window.

ICR: About $289/month

ICR bills the lesser of two formulas, and its discretionary income shields only 100% of the poverty line, not 150%. Branch one: 20% of ($45,000 minus $15,960) / 12 = $484. Branch two: a 12-year fixed payment ($349 at 6.39%) times the income percentage factor ED republishes each year — 82.88% here, or about $289/month. The lesser branch applies. Even so, ICR is the costliest plan here; it stays relevant because consolidated Parent PLUS borrowers have no other IDR plan open to them. ICR sunsets July 1, 2028, and new Parent PLUS loans after July 2026 are not eligible for IDR or RAP even after consolidation.

RAP (Live Since July 2026): $150/month

No estimate needed here: RAP's schedule reads straight off the AGI band. $45,000 falls in the $40,000-$50,000 band, which pays 4% of total AGI, so 4% of $45,000 / 12 = $150/month, exactly. (The June version of this page guessed 5% and printed $188; the final regulations settle it.) RAP subtracts $50 per dependent, so the same borrower with one child pays $100. Each on-time payment does two more things: unpaid interest is waived instead of added to your balance, and if less than $50 of the payment reaches principal, ED adds a matching principal payment of up to $50. The tradeoffs: a 30-year forgiveness clock and a $10 monthly minimum.

Which IDR Plan Should You Choose?

The right plan depends on your loan vintage, your income trajectory, and whether you are pursuing Public Service Loan Forgiveness:

New Borrower After July 1, 2026

You have only two repayment options under OBBBA: the Tiered Standard Plan (fixed payments over 10-25 years) or RAP. If your income is low relative to your balance, RAP will produce lower monthly payments. If you can afford the standard payment and want to pay less total interest, choose the Tiered Standard Plan. There is no IBR, PAYE, or ICR for new loans.

Existing Borrower Currently on IBR

Compare your IBR payment to the RAP schedule before deciding. ED's own comparison table in the May 2026 final rule puts RAP below post-2014 IBR for AGI between $30,000 and $70,000 (at the $60,000-$70,000 band, $325 versus $353 a month — ED's table used an older guideline; on 2026's, about $342), and above roughly $70,000 the order flips. RAP does stretch forgiveness to 30 years, so a lower payment can still cost more over the loan's life. If you are already 5-10 years into IBR, staying preserves the shorter clock.

Borrower Pursuing PSLF

Choose the plan with the lowest monthly payment. Since PSLF forgives your remaining balance after 120 qualifying payments (10 years) regardless of the amount, every dollar you do not pay during those 10 years is a dollar forgiven tax-free. For most PSLF-track borrowers, that means PAYE, new-borrower IBR, or RAP — whichever bills least; in the $45,000 example, RAP's $150 undercuts IBR's $176. PSLF forgiveness remains tax-free — the January 2026 tax change does not apply.

High Earner ($100,000+ AGI)

At higher income levels, IDR payments may actually exceed the Standard Repayment amount (in which case your payment is capped at the Standard amount under IBR and PAYE; RAP has no such cap, and ED's comparison table shows $875 a month at $100,000-$110,000 AGI). Run the numbers: if your IDR payment equals the Standard payment, you are paying the same monthly amount but stretching repayment over 20-30 years and accruing more total interest. Here, the Standard Plan or aggressive extra payments through a payoff strategy may save thousands. Consider refinancing if you have strong credit and stable income.

What SAVE Plan Borrowers Should Do Now

The SAVE Plan is finished. On March 10, 2026, a federal court order barred ED from implementing it, and SAVE no longer appears on FSA's repayment-plans page at all. Borrowers it parked in administrative forbearance are now directed to pick a new plan and resume paying; forbearance months make no progress toward forgiveness.

Step-by-Step Transition Guide

Step 1: Check your loan status. Log into studentaid.gov and your servicer's website (MOHELA, Aidvantage, Nelnet, or Edfinancial). Confirm whether your loans are listed as "administrative forbearance" and verify your loan type, balance, and servicer contact information.

Step 2: Evaluate IBR now vs. RAP later. You can switch to IBR immediately to resume making qualifying payments. This matters most if you are pursuing PSLF: forbearance months do not count toward the 120. If you are not pursuing PSLF, RAP has been open since July 1, 2026 and may offer lower payments depending on your income.

Step 3: Consider the PSLF Buyback Program. The route opens only once you have 120 months of approved qualifying employment on file, a balance outstanding, and months sitting in an ineligible deferment or forbearance to reclaim. You pay what your IDR plan would have charged at the time, at your income and family size back then, and the agreement must be paid in full within 90 days. Months spent in RAP or the Tiered Standard Plan cannot be bought back.

Step 4: Apply early. FSA's court-actions page confirms IDR and consolidation applications are open and servicers are processing them. Submit as soon as you decide; RAP enrollment is open now.

Step 5: Recertify your income annually. Every IDR plan recertifies yearly; FSA now supports automatic recertification through an IRS data share if you consent. Miss a manual deadline and your servicer re-sets the payment off the Standard formula: in the $45,000 example, that is $396 instead of $176 until you recertify.

Tax Implications of IDR Forgiveness

Starting January 1, 2026, any student loan balance forgiven through an IDR plan is treated as taxable ordinary income by the IRS. The American Rescue Plan Act (ARPA) had temporarily exempted student loan forgiveness from taxation, but that provision expired on December 31, 2025. This change creates a potential "tax bomb" at the end of your repayment period.

Worked Example: The IDR Tax Bomb

Run the RAP example to its end. A $150 payment on $35,000 at 6.39% does not cover the roughly $186 of monthly interest, so RAP waives the shortfall and the matching principal payment chips $50 off the balance each month. Hold income flat for all 360 months and about $17,000 of principal remains at year 30, all of it added to your taxable income. In the 22% bracket that is roughly $3,700 in federal tax, plus state tax. Rising income shrinks the bill; a bigger starting balance grows it. Three ways to prepare:

1. Save monthly for the tax bill. Even $10-15 a month in a high-yield savings account, started now, more than covers the example's $3,700 bill over a 30-year horizon.

2. Investigate the IRS insolvency exception. Under IRS rules, if your total liabilities exceed your total assets at the time of forgiveness, you may qualify for the insolvency exception, which allows you to exclude some or all of the forgiven amount from taxable income. The test is mechanical: liabilities against assets on the day of discharge, worked through the insolvency worksheet in IRS Publication 4681.

3. Pursue PSLF if eligible. PSLF forgiveness remains completely tax-free, even after the 2026 change. For government and 501(c)(3) employees, PSLF erases both the balance and the tax bill after 120 payments.

Forgiveness types that remain tax-free: PSLF, Teacher Loan Forgiveness, Borrower Defense to Repayment discharges, and Total and Permanent Disability (TPD) discharges. IDR-based forgiveness (after 20-30 years of payments) is now taxable; closed-school discharges vary case by case.

Frequently Asked Questions

What is the difference between IBR and RAP?

IBR charges 10% of discretionary income for post-2014 borrowers (15% for older loans) and forgives after 20-25 years. RAP charges 1-10% of total AGI by $10,000 band, with a $10 monthly minimum, a $50 reduction per dependent, and a 30-year forgiveness clock. ED's May 2026 comparison table puts RAP below post-2014 IBR for AGI between $30,000 and $70,000; above that, IBR's poverty-line exclusion wins.

Is the SAVE plan still available?

No. A federal court order issued March 10, 2026 blocks the Department of Education from implementing SAVE, and the plan no longer appears on Federal Student Aid's repayment-plans page. Former SAVE borrowers parked in forbearance are directed to select a new plan and begin repaying. In practice the choice is IBR (for pre-July-2026 loans) or RAP.

How are IDR payments calculated?

IBR, PAYE, and ICR count discretionary income: AGI minus 150% of the poverty line (100% for ICR). IBR charges 10-15% and PAYE 10% of that figure; ICR bills the lesser of 20% or an income-adjusted 12-year payment. RAP skips the poverty line and reads a percentage straight off your AGI band, 1-10%, with a $10 minimum and a $50 reduction per dependent.

What happens if my income increases on an IDR plan?

Your payment rises at the next annual recertification. Under IBR and PAYE it can never exceed the 10-year Standard amount. RAP has no Standard-payment cap; the percentage climbs with your AGI band and tops out at 10% above $100,000. If IDR stops saving you money, compare total costs against the Standard Plan or refinancing.

Is IDR forgiveness taxable?

Yes, since January 1, 2026. The American Rescue Plan Act exemption expired December 31, 2025, so balances forgiven at the end of an IDR term count as taxable income. In the worked example above, roughly $17,000 forgiven at year 30 means a federal bill near $3,700 in the 22% bracket. PSLF, Teacher Loan Forgiveness, Borrower Defense, and disability discharges remain tax-free.

Can I switch between IDR plans?

Yes, by application at studentaid.gov; check how a switch treats your forgiveness clock first. The menu is shrinking: PAYE and ICR sunset July 1, 2028, and taking out any new loan on or after July 1, 2026 ends IBR, ICR, and PAYE eligibility entirely, older loans included. Pre-July-2026 borrowers end up choosing IBR or RAP once the sunsets land; new borrowers get only RAP.

Do IDR payments count toward PSLF?

Yes — with two limits: RAP credits only on-time payments, and ICR or PAYE payments stop counting after June 30, 2028. PSLF forgiveness stays tax-free after the 2026 change. If you work for a qualifying employer, pick the plan that bills least; every unpaid dollar is a dollar forgiven. See our PSLF guide.

What should SAVE Plan borrowers do right now?

Check your loans at studentaid.gov and your servicer's site (MOHELA, Aidvantage, Nelnet, or Edfinancial); FSA's court-actions page directs former SAVE borrowers to pick a plan and resume paying. If you are pursuing PSLF, move to IBR promptly, since forbearance months do not count toward the 120. Applications are open and processing; file as soon as you decide.

IDR payment calculations and forgiveness timelines depend on loan origination date, plan selection, and annual income recertification. Treat the examples above as illustrations, not personalized advice. See our editorial and risk disclosure →

Sources for the figures on this page: Federal Student Aid — Repayment Plans and the IDR court-actions notice (both re-read August 10, 2026); the Department of Education's May 1, 2026 final regulations (the RAP payment schedule and §455(q)) and the 2026 ICR income-percentage factors; HHS 2026 poverty guidelines; IRS Publication 4681 on canceled-debt insolvency; and buyback conditions from FSA's PSLF Buyback page.

Every payment figure re-derived against the Federal Register schedules and FSA's live pages: August 10, 2026