What Is the Income Limit for Income Driven Repayment Plan? No Strict Cap

• There’s no fixed income limit for Income-Driven Repayment plans, but higher incomes lead to higher monthly payments.

• The SAVE plan offers $0 monthly payments for borrowers earning less than 225% of the federal poverty line.

• As income increases, IDR plan payments may eventually match or exceed the standard 10-year repayment plan amount.

Income-Driven Repayment plans are a group of student loan repayment plans that based your monthly payments on your income, family size, and

offer relief for federal student loan borrowers by adjusting monthly payments based on income and family size. While there’s no strict income limit that disqualifies borrowers from IDR plans, income determines eligibility for certain plans and payment amounts.

Ahead, we’ll explain how income affects these plans.

Is There An Income Cap For Income-Driven Repayment Plans?

No, there isn’t a strict income cap for income-driven plans. Instead, these plans use a sliding scale approach where your monthly payment increases as your income rises. But higher income doesn’t disqualify you from IDR plans entirely.

How income is considered in IDR plans: IDR plans calculate your monthly payment based on your discretionary income, not your total income. This approach ensures that payments remain affordable relative to your financial situation.

What it is: Discretionary income is the difference between your adjusted gross income (AGI) and a percentage of the federal poverty guideline for your family size and location. You can use a tax return, pay stub, or letter to document your income.

How it works: Most IDR plans use 150% of the poverty guideline, but the new SAVE plan uses 225%. The remaining amount is your discretionary income, of which you pay a percentage as your monthly student loan payment.

Who qualifies: All borrowers with eligible federal student loans can apply for IDR plans, regardless of income level. Borrowers with Parent PLUS Loans can qualify if they use the double consolidation loophole before July 2025.

How to apply: Submit an Income-Driven Repayment Plan Request form on the Federal Student Aid website, StudentAid.gov or through your loan servicer. Use the Loan Simulator to estimate payments.

Deadline: There’s no deadline; you can apply for an IDR plan at any time.

Is Income-Based Repayment Based On Household Income?

For married borrowers, whether household income is considered depends on your tax filing status and the specific IDR plan:

• If you file taxes jointly, all IDR plans will consider your combined household income.

• If you file taxes separately, all plans will only consider your individual income.

• Before it was replaced by SAVE, the REPAYE plan always considered both spouse’s income, regardless of tax filing status.

Related: Marriage and Student Loans

Different IDR plans have varying income considerations.

Here’s a comparison of the main plans focusing on income-related factors:

Saving on a Valuable Education Plan

• The SAVE Plan calculates payments as 5% of discretionary income for undergraduate loans and 10% for graduate loans.

• Offers $0 monthly payments for borrowers earning less than 225% of the federal poverty line.

• Typically offers the lowest monthly payment amount of all IDR Plans.

Pay As You Earn Plan

• Payments are 10% of discretionary income.

• Requires a partial financial hardship (calculated payment less than the 10-year Standard Repayment amount).

• Important update: New enrollment closes on July 1, 2024. Apply before this date if PAYE is your best option.

Income-Based Repayment Plan

• New borrowers (on or after July 1, 2014): Pay 10% of discretionary income.

• Earlier borrowers: Pay 15% of discretionary income.

• Requires a partial financial hardship to qualify.

• Update: Starting July 1, 2024, borrowers who spend 5+ years on SAVE can’t switch to the IBR Plan.

Income-Contingent Repayment Plan

• Under the ICR Plan, you’ll pay the lesser of 20% of discretionary income or what you would pay on a 12-year fixed payment plan.

• Update: From July 1, 2024, only available to borrowers with Direct Consolidation Loans containing parent PLUS loans.

Under IDR Plans, your federal student loan payments adjust as your financial situation changes. Understanding these adjustments helps you effectively manage your loans.

Short-term income fluctuations:

• Annual recertification: Your payment is recalculated yearly based on updated income and family size.

• Immediate reporting: You can request an immediate recalculation if your income significantly decreases.

• Temporary changes: Short-term income boosts may temporarily increase payments but won’t permanently affect your plan.

Long-term income growth:

• Gradual payment increases: Monthly payments rise as your discretionary income grows.

• Approaching standard payment: Your IDR payment might eventually equal or exceed the 10-year Standard Repayment Plan amount.

• Plan suitability changes: Higher income might make some plans less beneficial (e.g., no longer having a partial financial hardship for PAYE or IBR).

Managing changing income:

• Stay informed about how each plan calculates payments and income limits.

• Annually reassess if your current plan still offers the best terms for your situation.

• Consider how anticipated income changes will affect your repayment strategy.

• For married borrowers, remember that tax filing status can significantly impact payment calculations in some plans.

• Maintain income documentation to support recalculation requests if needed

Related: Does an Income-Driven Student Loan Repayment Plan Affect My Mortgage Application?

What Is The Income-Based Repayment Cutoff?

There isn’t a single, fixed income-based repayment cutoff. Instead, the “cutoff” varies based on your specific circumstances:

• Partial Financial Hardship: For plans like PAYE and IBR, you must have a partial financial hardship to qualify initially. This means your calculated IDR payment must be less than the 10-year Standard Repayment amount. You’ll typically meet this requirement if your total federal student loan debt is more than your discretionary income.

• Payment Cap: In PAYE and IBR, your payment will never exceed the 10-year Standard Repayment amount, even as your income increases.

• Practical Cutoff: As your income grows, your IDR payment may equal or exceed the Standard Repayment amount, creating a practical “cutoff” where IDR no longer provides a benefit.

Specific Income Levels That May Result In $0 Payments

The SAVE plan has introduced the most generous income threshold for $0 payments:

SAVE Plan: $0 monthly payments for borrowers earning less than 225% of the federal poverty line

• Single borrower: Approximately $32,800/year or less.

• Family of four: Approximately $67,500/year or less.

Other plans have lower thresholds:

• PAYE, IBR (new borrowers): $0 payments if income is below 150% of the poverty line.

• IBR (old borrowers): $0 payments if income is below 100% of the poverty line.

Note: The U.S. Department of Education counts Social Security disability payments as income only if they are treated as taxable income and are included as part of your AGI on your federal income tax return, in accordance with IRS requirements.

How Family Size Affects These Thresholds

Family size plays a big role in determining your discretionary income and, consequently, your payment amount:

• Larger family = Higher poverty guideline = More protected income

• Result: With the same income, a larger family may have a lower (or $0) IDR payment

Example: Single borrower vs. Family of four, both earning $40,000/year under the SAVE plan:

• Single: May have a monthly payment

• Family of four: Qualifies for $0 monthly payment

While IDR plans have no strict income limit, high incomes can affect their benefits. Here’s what high-income earners should know:

Impact of High Income on IDR Plans

What it is: As your income increases, your IDR plan payments will also increase.

How it works: Your monthly payment grows proportionally with your income until it potentially matches or exceeds the Standard Repayment Plan amount.

Who it affects: Borrowers whose income-driven payments approach or surpass what they would pay on the 10-year Standard Repayment Plan.

SAVE Plan for High-Income Borrowers

• No strict income limit exists, but benefits diminish as income increases.

• Can still be beneficial due to interest subsidies and potential loan forgiveness.

• May provide more benefits at higher incomes compared to other IDR plans.

Related: Is the SAVE Plan Worth It?

Income Levels Where IDR Benefits May Diminish

• Benefits reduction varies based on loan balance, family size, and specific plan.

• Single borrower with $50,000 in loans: Benefits may diminish around $80,000-$100,000 annual income.

• Borrower with $100,000 in loans: May still benefit at incomes up to $150,000-$200,000.

• PAYE and IBR: Benefits diminish when income-driven payment equals 10-year Standard Repayment amount.

• SAVE and ICR: May provide benefits at higher incomes due to specific terms.

Example Calculations

Single borrower, $80,000 income, $50,000 loan balance:

• Standard 10-year plan: $530/month

• SAVE plan: $380/month

• PAYE/IBR: $510/month

Single borrower, $150,000 income, $100,000 loan balance:

• Standard 10-year plan: $1,060/month

• SAVE plan: $880/month

• PAYE/IBR: $1,060/month (capped at Standard plan amount)

How Do IDR Plans Compare to Refinancing For High-Income Borrowers?

While IDR plans adjust payments based on income, refinancing with a private lender might offer lower interest rates for high-income borrowers with good credit scores. But refinancing federal loans into private student loans means losing protections like:

• Access to income-driven repayment plans

• Potential loan forgiveness, including Public Service Loan Forgiveness (PSLF)

• Longer repayment terms (up to 20-25 years) offered by IDR plans

• Ability to make qualifying payments towards forgiveness programs

Consider your long-term career plans and financial goals before refinancing. If you’re pursuing PSLF or value federal loan protections, an IDR plan might be more beneficial despite a higher income. If you have a stable, high-income job and want to pay off loans quickly, refinancing could save you money on interest.

When it comes to IDR, there are several misconceptions about income limits and how they affect eligibility and payments.

Let’s clear up some of the most common misunderstandings:

Myth 1: There’s a Maximum Income Limit for IDR Plans

Reality: There’s no strict upper income limit that disqualifies you from IDR plans. But as your income increases, your payments may also increase, potentially matching or exceeding the standard 10-year repayment amount.

Myth 2: High-Income Earners Can’t Benefit from IDR Plans

Reality: While the benefits may diminish at higher income levels, some high-income borrowers can still benefit from IDR plans, especially those with high debt-to-income ratios or those pursuing PSLF.

Myth 3: Your Payments Will Always Be a Fixed Percentage of Your Total Income

Reality: IDR plans calculate payments based on your discretionary income, not your total income. Discretionary income is the difference between your annual income and a percentage of the poverty guideline for your family size and location.

Myth 4: If Your Income Increases, You’ll Be Kicked Off the IDR Plan

Reality: Increases in income don’t disqualify you from IDR plans. Your payments will adjust with your income, but you can remain on the plan regardless of how high your income grows.

Myth 5: All IDR Plans Have the Same Income Considerations

Reality: Different IDR plans (SAVE, PAYE, IBR, ICR) have varying calculations and considerations for income. For example, the SAVE plan offers more generous terms for low-income borrowers compared to other plans.

Myth 6: Married Borrowers’ Payments Are Always Based on Joint Income

Reality: This depends on the specific IDR plan and how you file taxes. Some plans, like SAVE and IBR, allow married borrowers who file taxes separately to have payments based only on their individual income.

Myth 7: Once You’re on an IDR Plan, Your Payments Are Set for the Entire Repayment Period

Reality: You must recertify your income and family size annually. Your payments can change each year based on this updated information.

Income-Driven Repayment plans offer flexible federal student loan management, adapting to your financial situation over time. While there’s no strict income limit, your income significantly impacts monthly payments and overall benefits.

As a reminder:

• Payments adjust with income changes

• SAVE plan offers the most generous terms for lower-income borrowers

• High-income earners can still benefit in certain situations

• Regular recertification is essential

Choosing the right plan depends on your unique circumstances and long-term goals. As your income evolves, so might your ideal repayment strategy.

Need help navigating your options? Book a 1:1 consultation with our student loan experts to optimize your repayment strategy.