Income-driven repayment (IDR) plans provide federal student loan borrowers with a sustainable way to lower their monthly payments. Among IDR plans, Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) became popular options to help borrowers reach forgiveness. The Biden administration hoped to replace those plans with an improved option when they created the Saving for a Valuable Education (SAVE) IDR plan.
Due to the SAVE plan, no new enrollments for PAYE or ICR were going to be accepted after July 1, 2024. However, the Department of Education issued an interim final rule to amend that date to July 1, 2027.
PAYE and ICR Plans: What Borrowers Need to Know
Pay As You Earn (PAYE) Plan
The PAYE plan caps monthly payments at 10% of discretionary income for eligible borrowers, with forgiveness possible after 20 years of qualifying payments. PAYE typically offers low payments for borrowers with limited income and is ideal for borrowers with newer Direct Loans.
Income-Contingent Repayment (ICR) Plan
ICR bases payments on 20% of discretionary income and offers forgiveness after 25 years of qualifying payments. Borrowers with Direct Consolidation Loans are eligible for ICR.
The SAVE Plan Injunction is Causing ED to Reopen PAYE and ICR Enrollment
The Department of Education introduced the SAVE plan to simplify and improve income-driven repayment for borrowers. Monthly payments on SAVE were to be reduced to 5% of discretionary income and the time to forgiveness was shortened to as little as 10 years depending on the loan type and balance.
As part of the SAVE rollout, new enrollments for PAYE and ICR were phased out, leaving only SAVE and Income-Based Repayment (IBR).
Legal challenges to SAVE caused a court injunction, halting SAVE before it could be fully implemented. 8 million borrowers who had applied for SAVE were placed into forbearance until the appeals process was completed and a final court decision could be made.
PAYE and ICR Applications Should Be Available Mid-December
Since borrowers in forbearance don’t qualify for forgiveness and can’t afford their payments under Standard repayment, the Department of Education has decided to reopen enrollment into PAYE and ICR. This will allow borrowers to avoid the SAVE injunction and continue making qualifying payments toward forgiveness.
The new rule reopening PAYE and ICR is expected to become effective on or around December 15th.
The Future of IDR and Forgiveness
The fate of the SAVE plan will be determined when the 8th Circuit makes its final decision early into the Trump administration. Depending on the scope of the court decision, PAYE, ICR, and other plans that count toward forgiveness could be at risk of ending or changing. Borrowers can continue to manage their repayment on IonTuition and we will guide them accordingly, no matter what happens in 2025.