The income-driven repayment landscape changed dramatically in 2025-2026. The SAVE plan was terminated following a December 2025 legal settlement. The One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, introduced a brand-new Repayment Assistance Plan (RAP) and set sunset dates for PAYE and ICR by July 2028. As lending engineers who have modeled these payment structures for years, we can tell you that the transition window matters enormously — what you do before July 1, 2026 determines which plans remain available to you and how much you ultimately pay. This guide covers every current and transitioning IDR plan, the new RAP formula, and exactly which deadlines you cannot miss. If you are pursuing forgiveness through a government employer, see our guide on Public Service Loan Forgiveness (PSLF).

What Changed: The 2025-2026 IDR Overhaul

If you have not checked your repayment options since 2024, the landscape is unrecognizable. Here is what happened:

• SAVE plan terminated (December 2025): Following prolonged legal challenges, a settlement permanently ended the SAVE plan. New enrollments are closed. Borrowers previously on SAVE were placed into administrative forbearance and must transition to another plan.
• One Big Beautiful Bill Act signed (July 4, 2025): This legislation created the Repayment Assistance Plan (RAP) — a new income-driven option with payments set at 1-10% of adjusted gross income and a 30-year forgiveness timeline. RAP will be available starting in 2026 and becomes the only IDR option for all borrowers by July 1, 2028.
• PAYE closing to new enrollments (July 1, 2027): Borrowers currently on PAYE can continue, but no new enrollments will be accepted after this date. PAYE will be fully eliminated by July 1, 2028.
• ICR eliminated (July 1, 2028): ICR — the only IDR plan for Parent PLUS borrowers — will sunset. Parents who want income-driven payments must consolidate and enroll before July 1, 2026 to access ICR.
• IBR partial financial hardship requirement removed: The OBBB Act eliminated the partial financial hardship test for IBR enrollment, making it accessible to all borrowers regardless of income-to-debt ratio.
• New borrowing caps: For loans disbursed after July 1, 2026, aggregate limits are capped at $100,000 for graduate programs and $200,000 for professional programs (medical, dental, law).
• Tax-free IDR forgiveness expired: The American Rescue Plan provision making student loan forgiveness tax-free ended December 31, 2025. IDR forgiveness is once again taxable income (PSLF forgiveness remains permanently tax-free).

The bottom line: IBR is now the primary legacy IDR plan for existing borrowers, and RAP is the future for everyone. The sections below cover each plan's mechanics, but the transition deadlines in the Critical Transition Deadlines section determine which options remain available to you.

What Income-Driven Repayment Actually Means

Income-driven repayment (IDR) is a category of federal student loan repayment plans that calculate your monthly payment based on your income and family size rather than your loan balance. Under IDR, payments typically range from 1% to 20% of your income, and any remaining balance is forgiven after 20 to 30 years of qualifying payments. As of 2026, approximately 11.8 million federal borrowers — about 27% of all federal student loan holders — are enrolled in an IDR plan, according to the U.S. Department of Education.

On the Standard Repayment Plan, your monthly payment is fixed based on your loan balance — typically calculated to pay off your debt in exactly 10 years. Income-driven repayment flips this model entirely. Instead of basing payments on what you owe, IDR bases them on what you earn. If your income is low relative to your debt, your payment drops. If your income rises, your payment increases — but on most plans, never beyond what you would pay on the Standard Plan.

Every IDR plan shares three structural features:

• Payments are recalculated annually based on your most recent tax return and family size. You must recertify your income every 12 months or your payment reverts to the Standard Plan amount.
• Remaining balances are forgiven after 20 to 30 years of qualifying payments, depending on the plan. Legacy plans (IBR, PAYE) forgive at 20-25 years; the new RAP plan extends this to 30 years.
• Unpaid interest may be subsidized — meaning the government covers some or all of the interest your payment does not cover, preventing your balance from growing uncontrollably.

The critical distinction between plans is how much of your income is protected from the payment calculation and what percentage of the remainder you pay. Understanding this requires knowing how the government defines discretionary income.

The Discretionary Income Formula: The Engine Behind Every IDR Payment

Every IDR plan calculates your payment using the same core concept — discretionary income — but they define it differently. This single difference creates payment gaps of hundreds of dollars per month between plans.

The protection multiplier is where plans diverge:

• PAYE and new IBR (and formerly SAVE): Protect 225% of the Federal Poverty Level (FPL) from your income before calculating payments.
• Old IBR (pre-July 2014 borrowers): Protects 150% of FPL.
• ICR: Protects 100% of FPL — the least generous protection.

For a single borrower in 2026, the Federal Poverty Level is $15,650. Here is how much income each plan shields:

A single borrower earning $50,000 on new IBR has a discretionary income of $14,787 ($50,000 − $35,213). On ICR, that same borrower's discretionary income is $34,350 ($50,000 − $15,650) — more than double. This difference alone means ICR payments can be 2-4 times higher than IBR payments at the same income level.

All IDR Plans Compared (Including RAP): The Complete Breakdown

*ICR uses the greater of 20% of discretionary income or a fixed 12-year payment adjusted by income — whichever is less.

RAP: The New Repayment Assistance Plan

The Repayment Assistance Plan (RAP), created by the One Big Beautiful Bill Act, is the most significant structural change to income-driven repayment since the program's inception. RAP replaces the traditional discretionary-income-percentage model with a sliding scale tied directly to adjusted gross income. For loans disbursed after July 1, 2026, RAP will be the only income-driven option. By July 1, 2028, it becomes the only IDR plan for all federal borrowers.

How RAP Differs from Legacy IDR Plans

• Income-percentage model, not discretionary-income model: Legacy plans subtract a poverty-level multiplier from your AGI to determine discretionary income, then take a percentage. RAP skips the discretionary income calculation entirely and applies a sliding percentage directly to your AGI. This is a fundamentally different formula that produces different payment amounts at every income level.
• 30-year forgiveness timeline: RAP extends the forgiveness period from 20-25 years (under legacy plans) to 30 years of on-time payments. This means borrowers pay for a longer period before any remaining balance is forgiven — increasing total payments compared to the 20-year PAYE/IBR timeline.
• Different interest handling: RAP handles unpaid interest differently than SAVE's full subsidy. Details on interest capitalization rules are still being finalized through regulatory guidance, but early indications suggest limited subsidies compared to what SAVE offered.
• Simplified enrollment: RAP removes the partial financial hardship test entirely — any federal borrower can enroll regardless of income level or debt amount.

RAP Limitations and Open Questions

• Longer forgiveness timeline: 30 years vs. 20 years under PAYE and new IBR means more total payments before forgiveness kicks in. For borrowers who would have received forgiveness at year 20, this adds 10 additional years of payments.
• Regulatory details pending: As of March 2026, the Department of Education is still finalizing implementation rules for RAP. Payment rate brackets, interest subsidy details, and PSLF compatibility are being determined through the rulemaking process.
• No Parent PLUS eligibility: Parent PLUS loans are not eligible for RAP — a critical change from ICR, which was the only IDR option for Parent PLUS borrowers. Parents must consolidate and enroll in ICR before the July 2028 sunset.

IBR: The Strongest Legacy Plan Still Standing

With SAVE terminated and PAYE/ICR sunsetting, IBR has become the most important income-driven repayment plan for existing borrowers. The OBBB Act strengthened IBR by removing the partial financial hardship requirement — previously, borrowers whose calculated IBR payment exceeded the Standard Plan amount could not enroll. That restriction is gone. Any borrower with Direct Loans or FFEL loans disbursed before July 1, 2026 can now enroll in IBR regardless of their income-to-debt ratio.

IBR exists in two versions, and which one you get depends on when you first borrowed federal student loans. This is not something you can choose — your borrowing history determines your version automatically.

New IBR (First Borrowed On or After July 1, 2014)

New IBR charges 10% of discretionary income with 225% FPL protection and a 20-year forgiveness timeline. It accepts both Direct Loans and FFEL loans without requiring consolidation. With SAVE gone, new IBR offers the best combination of low payments and short forgiveness timeline available to most borrowers — identical payment mechanics to PAYE, but without PAYE's enrollment deadline. If you were previously on SAVE, new IBR is likely your best transition option.

Old IBR (First Borrowed Before July 1, 2014)

Old IBR charges 15% of discretionary income with 150% FPL protection and a 25-year forgiveness timeline. Payments are 50% higher than new IBR at the same income level, and five additional years of payments are required before forgiveness. However, old IBR borrowers now benefit from the removed hardship requirement — enrollment is open to all, not just those demonstrating financial hardship.

SAVE Plan: What Happened and What to Do

The SAVE plan (Saving on a Valuable Education) replaced the REPAYE plan in 2023 and was briefly the most borrower-friendly IDR option ever created. Its 5% rate for undergraduate loans and full interest subsidy made it the clear best choice for most borrowers. However, SAVE faced immediate legal challenges from multiple state attorneys general, and a December 2025 settlement permanently terminated the plan.

If You Were on SAVE

• Your status: Borrowers enrolled in SAVE were placed into administrative forbearance during the litigation. You are not currently in repayment, but this forbearance period does not count toward IDR forgiveness or PSLF.
• What to do now: Submit a new IDR application at StudentAid.gov to transition to IBR (recommended for most borrowers) or PAYE (if you are eligible and want to lock in before the July 2027 enrollment deadline). Do not wait — time in forbearance is time not counting toward forgiveness.
• Your forgiveness count: Qualifying payments made under SAVE before its termination do transfer to your new IDR plan. You will not lose credit for payments already made.

PAYE: Pay As You Earn (Sunsetting)

PAYE remains operational but is on a defined sunset path. New enrollments close July 1, 2027, and the plan is fully eliminated July 1, 2028. Borrowers currently on PAYE can continue earning qualifying payment credits during the transition period. PAYE's payment cap at the 10-year Standard Plan amount remains its defining advantage — if your income rises significantly, your payment never exceeds the Standard Plan amount. For medical residents becoming attending physicians or law associates making partner, this cap can save thousands during the transition window.

Key PAYE Details

• Eligibility: You must be a "new borrower" — no outstanding balance on a Direct Loan or FFEL loan as of October 1, 2007, and must have received a Direct Loan disbursement on or after October 1, 2011. New enrollments close July 1, 2027.
• Partial financial hardship: Your calculated PAYE payment must be less than what you would pay on the Standard Plan. If your income grows beyond this threshold, you are still allowed to remain on PAYE but pay the Standard Plan amount.
• Forgiveness: 20 years for all loan types — the shortest forgiveness timeline of any currently active IDR plan.
• Interest subsidy: The government pays all accruing interest on subsidized loans for the first 3 years. After that, and for unsubsidized loans, unpaid interest capitalizes.
• Transition planning: If you are currently on PAYE and approaching forgiveness within the next 2 years, staying on PAYE through the sunset period is likely optimal. If forgiveness is more than 3 years away, evaluate whether transitioning to IBR (which will remain active) provides better long-term outcomes.

ICR: Income-Contingent Repayment (Sunsetting — Parent PLUS Deadline Alert)

ICR is the oldest and most expensive IDR plan, charging 20% of discretionary income with only 100% FPL protection and no interest subsidy. For most borrowers, it produces the highest payments of any IDR plan. However, ICR serves one critical purpose that makes its sunset date urgent: it is the only IDR plan available for Parent PLUS Loans.

For all non-Parent-PLUS federal loan types, IBR will produce significantly lower payments than ICR. Understanding your total debt-to-income ratio across all obligations — including student loans — is essential for making the right plan selection during this transition period.

Payment Examples at Different Income and Debt Levels

The following examples use 2026 Federal Poverty Level figures for a single borrower ($15,650 FPL). All calculations assume the borrower files taxes as single with no dependents.

Example 1: Recent Graduate — $40,000 Income, $35,000 Undergraduate Debt

At a $40,000 income with $35,000 in undergraduate loans, new IBR produces a payment of just $40/month — 89% less than the Standard Plan. The difference between new IBR and ICR is $366/month, or over $4,390/year. Even after SAVE's termination, income-driven plans can reduce monthly payments by hundreds of dollars compared to standard repayment.

Example 2: Mid-Career Professional — $65,000 Income, $80,000 Graduate Debt

With graduate debt, new IBR and PAYE produce identical payments — both charge 10% of discretionary income with 225% FPL protection. The key difference is timeline: PAYE forgives after 20 years for all loan types, while new IBR also forgives at 20 years. Both plans cap payments at the Standard Plan amount. For graduate borrowers earning $65,000, either plan saves over $6,900 per year compared to ICR.

Example 3: High Earner — $110,000 Income, $120,000 Mixed Debt

At $110,000 income, PAYE's payment cap becomes valuable. Both new IBR and PAYE cap payments at the Standard Plan amount ($1,243), so neither plan exceeds this ceiling as income rises. The practical difference at high incomes is now the forgiveness timeline and sunset dates. If you expect income growth above $130,000+, locking in PAYE before its July 2027 enrollment deadline preserves the 20-year forgiveness timeline with the payment cap — but IBR provides the same cap without the looming sunset. For high earners considering whether IDR still makes sense, see our student loan refinancing guide to compare private refinancing rates.

Forgiveness Timelines and Tax Implications

Loan forgiveness under IDR is not automatic — it requires making qualifying payments for a specific number of years, recertifying your income annually, and staying on an eligible plan for the entire period. Missing a recertification resets your payment to the Standard Plan amount and can delay forgiveness.

Forgiveness Timelines by Plan

The Tax Bomb Problem

When a loan balance is forgiven under IDR after 20-30 years, the forgiven amount is generally treated as taxable income by the IRS. If you have $80,000 forgiven after 25 years on ICR, you could owe $16,000-$24,000 in federal income taxes the year forgiveness occurs — depending on your tax bracket. Under RAP's 30-year timeline, the forgiven balance may be smaller (more payments over a longer period), but the tax liability at forgiveness still applies.

There are two critical exceptions:

• PSLF forgiveness is tax-free. If you work for a qualifying public service employer and make 120 qualifying payments (10 years), the remaining balance is forgiven with zero tax liability. This makes IDR + PSLF the most powerful student loan strategy available. See our complete guide on Public Service Loan Forgiveness for eligibility details.
• The American Rescue Plan provision (through 2025). Under this legislation, all student loan forgiveness was temporarily tax-free through December 31, 2025. As of March 2026, this provision has expired, and IDR forgiveness is again taxable unless Congress extends it.

Borrowers approaching IDR forgiveness should begin setting aside funds for the potential tax liability 3-5 years in advance, or consult a tax professional about insolvency exceptions that may reduce or eliminate the tax burden.

Total Cost Analysis: Which Plan Actually Saves You the Most

Monthly payment comparisons only tell part of the story. The total cost of a loan includes every payment made over the full repayment period, plus any forgiven balance that becomes taxable income. Here is a total cost comparison for a borrower with $60,000 in undergraduate loans at 5.5% interest, starting at a $45,000 salary with 3% annual raises:

Note: SAVE (formerly the lowest-cost plan at $47,700 total) has been terminated. New IBR is now the best available option for this borrower profile. For borrowers with lower starting incomes or higher debt-to-income ratios, new IBR may produce forgiveness — which would add a tax liability but reduce total payments.

New IBR and PAYE produce identical total costs at $68,400 — saving over $10,000 compared to the Standard Plan. Old IBR and ICR actually cost more than the Standard Plan because their higher payment percentages and longer timelines mean more total interest paid. With SAVE no longer available, plan selection still matters enormously — the difference between new IBR and ICR is $28,100 in total cost for this borrower profile.

Critical Transition Deadlines: What You Must Do and When

The IDR overhaul creates a series of hard deadlines. Missing any of these can permanently eliminate repayment options. Here is the complete timeline:

The most urgent deadline is for Parent PLUS borrowers. After ICR sunsets in July 2028, there will be no income-driven repayment option for Parent PLUS loans. If you are a parent with federal student loans, consolidate and enroll in ICR now — do not wait. The earlier you enroll, the more qualifying payments you accumulate before the sunset. For details on the consolidation process, see our guide on how loan servicers work.

Switching Plans: What Transfers and What Resets

With plans sunsetting and SAVE gone, millions of borrowers need to switch IDR plans. Here is what you need to know about the transition mechanics:

Your Forgiveness Count Transfers

When you switch between IDR plans, your qualifying payment count for IDR forgiveness generally transfers. If you made 48 qualifying payments on SAVE before it was terminated, those 48 payments count toward your new plan's forgiveness timeline on IBR or PAYE. The same applies when switching between any active IDR plans. However, the forgiveness timeline length may change — switching from PAYE (20 years) to old IBR (25 years) means you need 300 total qualifying payments instead of 240.

PSLF Payments Also Transfer

All IDR plans — IBR, PAYE, ICR, and previously SAVE — count toward the 120 qualifying payments required for Public Service Loan Forgiveness. Switching plans does not reset your PSLF payment count. If you made 36 PSLF-qualifying payments on SAVE and switch to IBR, you still have 36 payments credited.

Watch for Interest Capitalization

When you switch IDR plans, any accumulated unpaid interest may capitalize — meaning it is added to your principal balance. If you had $5,000 in unpaid interest on SAVE (which was covered by the interest subsidy), that amount could capitalize onto your principal when you transition to IBR, increasing the base on which future interest accrues. This is a one-time cost of switching, but it can add thousands to your total repayment.

How to Switch

1. Submit a new IDR application at StudentAid.gov/idr. Select your target plan (IBR recommended for most borrowers).
2. Authorize IRS data retrieval to speed processing to a few business days instead of 2-3 weeks with manual income documentation.
3. Continue payments on your current plan until the switch is confirmed. If you are in forbearance (former SAVE borrowers), submit the application as soon as possible — forbearance time does not count toward forgiveness.
4. Keep confirmation documentation. Save your application confirmation and any correspondence from your servicer. If questions arise later about payment counts or amounts, documentation is your proof.

How to Choose the Right IDR Plan in 2026

The decision framework has changed significantly. With SAVE gone and RAP incoming, here is how to select the right plan based on your situation:

1. Do You Have Parent PLUS Loans?

Yes: ICR is your only IDR option — and it sunsets July 2028. Consolidate Parent PLUS loans into a Direct Consolidation Loan and enroll in ICR immediately. RAP will not accept Parent PLUS loans. See our Parent PLUS loans guide for consolidation steps.

No: Continue to question 2.

2. Are You Pursuing PSLF?

Yes: Choose the plan with the lowest monthly payment to maximize the forgiven amount. For most borrowers, this is now IBR (new version, 10% of discretionary income). Since PSLF forgiveness is tax-free after just 10 years (120 payments), minimizing monthly payments is the optimal strategy. All active IDR plans count toward PSLF.

No: Continue to question 3.

3. Were Your Loans Disbursed Before or After July 1, 2026?

Before July 2026: You have access to IBR and (until July 2027) PAYE. New IBR at 10% with 20-year forgiveness is the strongest option for most borrowers. If you expect rapid income growth, PAYE's payment cap may save more — but you must enroll before July 2027.

After July 2026: RAP is your only income-driven option. Evaluate whether RAP's 1-10% sliding scale and 30-year timeline fits your repayment strategy, or consider the new Standard Plan.

4. Are You Married or Planning to Marry?

IBR and PAYE allow you to exclude your spouse's income by filing taxes separately — but this may cost you other tax benefits. ICR always includes spousal income regardless of filing status, making it the worst choice for married borrowers with high-earning spouses. RAP's spousal income treatment is still being finalized through regulatory guidance. If you are considering refinancing to a private loan instead, spousal income may actually help your application.

5. Were You Previously on SAVE?

Transition to IBR immediately. Your qualifying payments transfer. Every month you spend in administrative forbearance is a month that does not count toward forgiveness. New IBR (10%, 225% FPL protection, 20-year forgiveness) is the closest available option to what SAVE offered.

For a comprehensive view of all federal repayment options beyond IDR, including graduated and extended plans, see our complete guide to student loan repayment plans.

How to Enroll in an IDR Plan

Enrollment is free and handled through your loan servicer. Here is the process:

1. Go to StudentAid.gov/idr — The Department of Education's official IDR application works for all four plans. You can select a specific plan or let the system recommend one.
2. Provide income documentation — You can authorize the IRS Data Retrieval Tool to automatically pull your most recent tax return, or manually upload tax documents.
3. Report family size — This affects the Federal Poverty Level calculation. Include yourself, your spouse (if filing jointly), and dependents.
4. Submit and wait for processing — Your servicer typically processes IDR applications within 1-3 weeks. Continue making payments on your current plan until the new plan takes effect.
5. Recertify every 12 months — Your servicer will notify you when recertification is due. Missing the deadline means your payment reverts to the Standard Plan amount, and unpaid interest may capitalize. For details on how servicers handle recertification, see our guide on how loan servicers work.

Common Mistakes That Cost Borrowers Thousands

• Staying in administrative forbearance after SAVE termination: Former SAVE borrowers placed in forbearance are not accumulating qualifying payments toward forgiveness. Every month in forbearance is a wasted month. Submit a new IDR application for IBR immediately.
• Missing recertification deadlines: If you fail to recertify income annually, your payment jumps to the Standard Plan amount and all accrued unpaid interest capitalizes onto your principal balance. Set calendar reminders 60 days before the deadline.
• Consolidating FFEL loans without considering PSLF: Consolidating into a Direct Loan resets your PSLF payment count to zero. If you have years of qualifying payments under IBR, consolidation could erase that progress.
• Ignoring the marriage penalty: Filing jointly with a high-earning spouse can dramatically increase your IDR payment. Model both filing separately and jointly to see which approach minimizes your total cost — including the tax implications of each filing status.
• Not factoring in the tax bomb: A $100,000 forgiven balance at year 20-25 could generate a $22,000-$37,000 tax bill. The American Rescue Plan tax-free provision expired December 31, 2025 — IDR forgiveness is once again taxable income. Start saving early, or build a PSLF-qualifying career to avoid it entirely (PSLF forgiveness remains permanently tax-free).
• Waiting to see what happens with RAP before switching: RAP details are still being finalized, but its 30-year forgiveness timeline is confirmed. If you have access to IBR's 20-year timeline now, locking that in may save you 10 additional years of payments compared to RAP.
• Not consolidating Parent PLUS loans before ICR sunset: Once ICR is eliminated July 2028, Parent PLUS borrowers lose all access to income-driven repayment. There is no replacement. Consolidate and enroll in ICR now.

The Bottom Line: What to Do Right Now

The IDR landscape in 2026 comes down to three actions depending on your situation:

1. If you were on SAVE: Submit a new IDR application for IBR at StudentAid.gov today. Your forbearance time is not counting toward forgiveness. Every month you wait is a month lost.
2. If you have Parent PLUS loans: Consolidate into a Direct Consolidation Loan and enroll in ICR before July 2028. There will be no income-driven replacement for Parent PLUS borrowers after ICR sunsets.
3. If you are a new borrower (post-July 2026): RAP will be your only income-driven option. Evaluate whether the 1-10% AGI sliding scale and 30-year forgiveness timeline works for your financial plan, or consider the new Standard Plan if you can afford fixed payments.

For existing borrowers with pre-July 2026 loans, IBR is the plan to be on. It has the strongest combination of low payments (10% of discretionary income for new borrowers), short forgiveness (20 years), payment cap protection, and no sunset date. The OBBB Act removed the financial hardship barrier, so enrollment is open to everyone. Do not wait for RAP regulatory details to be finalized — lock in IBR's 20-year forgiveness timeline now while you still can.

Frequently Asked Questions