Income-driven repayment plans set the monthly payment as a percentage of discretionary income and cancel the remaining balance after 20 or 25 years. Public Service Loan Forgiveness cancels after 10 years of qualifying payments in eligible employment. Both programs are administratively complex and worth learning if any federal loan balance remains.
- 01Distinguish the current federal income-driven repayment plans on payment cap and forgiveness horizon.
- 02State the eligibility rules for Public Service Loan Forgiveness.
- 03Compute the expected total cost of an IDR plan versus a 10-year standard plan.
The IDR menu
The current plans are SAVE, PAYE, IBR, and ICR (subject to litigation and program changes). Each sets the payment as a percentage of discretionary income and cancels after a fixed horizon. The payment percentage and horizon differ, and the choice among them depends on the household's income trajectory.
PSLF
Public Service Loan Forgiveness cancels the remaining balance after 120 qualifying monthly payments while employed by a qualifying public-sector employer. The forgiven amount is not taxable. The eligibility rules are strict; annual employer certification is essential.
The math
For a borrower with a large balance and a modest starting income, IDR often produces a lower total cost than the standard 10-year plan despite the longer horizon, because the capped payments over decades sum to less than aggressive principal repayment on a high balance. Model it before choosing.
- IDR trades time for a lower monthly payment.
- PSLF forgives after 10 years in qualifying employment.
- The right plan depends on income trajectory and employment.