If you’re a federal student loan borrower hoping to make your monthly payments more affordable, Income-Based Repayment (IBR) and Pay As You Earn (PAYE) are two repayment plans you may be exploring. These income-driven (IDR) plans base your monthly payments on your discretionary income and family size. But it’s important to understand the differences between IBR and PAYE to choose the best option for your needs.
It’s also important to note that one of these plans is ending in 2028, along with other changes to student loan repayment plans, which might influence your decision. Here’s what you need to know about PAYE vs. IBR.
Table of Contents
Key Points
• Under the IBR plan, payments are 10-15% of a borrower’s discretionary income over 20 to 25 years depending on loan disbursement dates, while under PAYE, payments are 10% of discretionary income over 20 years.
• Unpaid interest capitalizes under IBR when borrowers leave the plan voluntarily or miss income recertification deadlines, while on PAYE, interest accrues without capitalization.
• Borrowers on both plans qualify for Public Service Loan Forgiveness after 120 qualifying payments while working full-time for qualifying nonprofit or government organizations.
• Both plans will close to new borrowers on July 1, 2026, with PAYE being completely eliminated for all borrowers on July 1, 2028.
• Borrowers on PAYE will need to switch to the IBR plan or a new income-driven plan called RAP before July 1, 2028.
What Is the Income-Based Repayment Plan (IBR)?
The way income-driven repayment works is that borrowers’ monthly payments are based on their discretionary income and family size. If their discretionary income increases or decreases, their payments do the same.
Under the IBR plan, your payments are 10% to 15% of your discretionary income and the repayment term is 20 to 25 years, depending on when the loan was issued. You’ll pay 10% of your discretionary income over 20 years if your loan was disbursed after July 1, 2014. If you took out your loan before that date, you’ll pay 15% over a 25-year term.
Borrowers on IBR must update and recertify their family size and income each year, even if it hasn’t changed.
If you have federal subsidized loans, the government will pay any interest charges that your IBR monthly payments don’t cover for up to three consecutive years. After that, you are responsible for all interest charges. (Borrowers are always responsible for all interest charges on unsubsidized loans.) On IBR, you’re eligible to have any remaining balance on your loan forgiven at the end of your repayment term.
IBR is one of three IDR plans currently available to borrowers (the other two are PAYE and Income-Contingent Repayment, or ICR). However, as of July 1, 2028, all existing IDR plans except IBR will be eliminated.
IBR Eligibility Requirements
To be eligible for IBR, borrowers must have one or more of the following types of federal loans:
• Direct subsidized and unsubsidized loans
• Direct PLUS loans made to graduate or professional students
• Direct Consolidation loans that did not repay any PLUS loans made to parents (this requirement is changing as of July 1, 2026 — see more details below)
• Consolidated Perkins loans
• Certain Stafford and Federal Family Education Loans (FFEL)
Currently, a borrower must also demonstrate partial financial hardship to qualify for IBR. The amount they would pay under IBR must be less than the amount they would pay on the 10-year Standard Repayment Plan. (The financial hardship requirement is being eliminated as of July 1, 2026.)
New borrowers before July 1, 2026, or those with loans disbursed before that date, are eligible for IBR.
What Is the Pay As You Earn Plan (PAYE)?
Under PAYE, monthly student loan payments are based on 10% of your discretionary income over a 20-year term. Your payments will never be more than they would be under the Standard Plan. As with the IBR plan, borrowers must update and recertify their income and family size each year.
Like the IBR plan, if you are on PAYE and have subsidized loans, the government will pay any interest charges that your monthly payments don’t cover for up to three years.
Although PAYE had stopped offering student loan forgiveness in 2025 because of court injunctions, the plan has since resumed forgiveness for any remaining balance at the end of the repayment term.
PAYE closes to new borrowers (those who have not previously taken out federal student loans) on July 1, 2026. As of July 1, 2027, no borrowers can newly enroll in the PAYE plan. And on July 1, 2028, PAYE will be eliminated. Before that date, borrowers need to change their student loan repayment plan to the IBR plan or a new income-driven plan being introduced on July 1, 2026, called the Repayment Assistance Plan (RAP).
PAYE Eligibility Requirements
Borrowers must meet the following requirements to be eligible for PAYE:
• Be a new borrower on or after October 1, 2007
• Have received disbursement of a Direct loan as of October 1, 2011
• Have Direct subsidized or unsubsidized loans, Direct PLUS loans for graduate or professional students, or Direct Consolidation loans that don’t include Direct or FFEL PLUS loans made to parents
• Have a partial financial hardship (the amount a borrower would pay under IBR must be lower than the amount they would pay on the Standard Repayment plan).
IBR vs PAYE: Key Differences
While IBR and PAYE have some similarities, there are important differences between the two. One of the most critical distinctions is that while both plans will be closed to new borrowers as of July 1, 2026, PAYE will be completely eliminated for all borrowers on July 1, 2028.
Another important difference is that unpaid interest capitalizes on IBR if a borrower voluntarily leaves the plan for another repayment plan or if they fail to recertify their income by the annual deadline. Under PAYE, unpaid interest accrues but does not capitalize.
Payment Calculations and Forgiveness Timelines
The payment calculations and forgiveness timelines for IBR and PAYE are the same, except for borrowers on IBR who took out loans before July 1, 2014.
Payment Calculations
PAYE: Payments are 10% of a borrower’s discretionary income.
IBR with loans taken out on or after July 1, 2014: Payments are 10% of a borrower’s discretionary income.
IBR with loans taken out before July 1, 2014: Payments are 15% of a borrower’s discretionary income.
Capped payments: PAYE and IBR both guarantee that your monthly payments will never be higher than the amount you would pay on the 10-year Standard Repayment plan.
Forgiveness Timelines
PAYE: Forgiveness after 20 years of qualifying payments
IBR with loans taken out on or after July 1, 2014: Forgiveness after 20 years of qualifying payments
IBR with loans taken out before July 1, 2014: Forgiveness after 25 years of qualifying payments
Public Service Loan Forgiveness (PSLF) program: The PAYE and IBR plans are both qualifying repayment plans for PSLF. Qualifying borrowers must work in public service for a qualifying nonprofit or government organization. PSLF offers forgiveness after 120 qualifying payments on an IDR plan.
Which Plan Is Right for You?
Choosing between IBR vs. PAYE depends on your specific situation, including when you first borrowed your loans.
For example, if you are a new borrower as of October 1, 2007 and you received disbursement of a Direct loan as of October 1, 2011, you are eligible for PAYE. You are also eligible for IBR if the loans were taken out before July 1, 2014.
However, on PAYE, your monthly payments would be 10% of your discretionary income, and the repayment term would be 20 years with forgiveness for any remaining balance. But on IBR, your monthly payments would be 15% of your discretionary income and the repayment term would be 25 years with forgiveness after that. In other words, in this scenario, your payments on IBR would be higher and your repayment term longer.
If you have loans that were disbursed on or after July 1, 2014, you are eligible for IBR with monthly payments based on 10% of your discretionary income and a repayment term of 20 years with any remaining loan balance forgiven. You are also eligible for PAYE, which has the same discretionary income percentage, repayment term, and forgiveness option. But since PAYE is ending on July 1, 2028, you may decide that you’ll be better off with IBR, since that plan will remain open for existing borrowers.
Weigh the differences between the two plans carefully before making a decision.
The Future of PAYE and IBR
Effective as of July 1, 2026, both PAYE and IBR will close to new borrowers. Starting on July 1, 2028, PAYE will be eliminated completely. IBR will continue to be open and available to existing borrowers.
Borrowers on PAYE will need to switch to a new repayment plan, such as IBR or the new income-driven plan RAP before July 1, 2028. (The only other federal repayment option available will be a revised Standard Plan with fixed repayment terms of 10, 15, 20, or 25 years based on the loan amount borrowed.) If you don’t make the switch yourself by the deadline, your student loan servicer will automatically transition you to another plan.
RAP will launch on July 1, 2026, and it will be the only IDR plan for new borrowers as of July 1, 2026. RAP will also be available to borrowers who are on an existing IDR plan, such as PAYE or IBR, and want to make a switch.
Here’s how RAP works: Instead of discretionary income, RAP bases payments on a borrower’s adjusted gross income (AGI). Depending on what their income is, borrowers will pay 1% to 10% of their AGI over a term of up to 30 years. All borrowers are required to pay at least $10 per month on RAP.
After 30 years on RAP, any remaining loan balance will be forgiven. The government will cover unpaid interest from month to month and make sure the loan’s principal is reduced by at least $50 monthly.
Another repayment option some borrowers may want to explore is student loan refinancing. With refinancing, you replace your current loans with a new private loan from a private lender like a bank, credit union, or online bank. Ideally, the loan might have a lower interest rate and more favorable terms, which could save you money if you qualify. Just be aware that refinancing federal loans makes them ineligible for federal benefits like income-driven repayment and forgiveness.
The Takeaway
PAYE and IBR have some similarities but also key differences. While IBR will continue to be open to existing borrowers, PAYE will be eliminated on July 1, 2028. Borrowers enrolled in PAYE need to switch to another repayment plan before that time, such as IBR or the new RAP plan that launches on July 1, 2026.
There are other options as well. Some borrowers might wish to switch to the new Standard Plan instead. Others might consider refinancing their loans, especially if they don’t need federal benefits and qualify for a lower interest rate.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
What is the main difference between IBR and PAYE?
The main difference between IBR and PAYE is that while both plans will be closed to new borrowers as of July 1, 2026, PAYE will be completely eliminated for existing borrowers on July 1, 2028. IBR will remain open and available to existing borrowers. If you’re on PAYE and want to stay in an income-driven plan, you can switch to IBR or the new Repayment Assistance Plan (RAP) before the 2028 deadline.
Can I switch from PAYE to IBR?
Yes, you can switch from PAYE to IBR at any time. In fact, since PAYE will be eliminated on July 1, 2028, you can switch before that time to IBR. To make the switch, log in to your account at StudentAid.gov and choose “Certify or change my income-driven repayment plan.”
Which plan has lower monthly payments, IBR or PAYE?
Which plan has lower payments depends on when you took out your loans. Most borrowers would typically have lower payments on PAYE because their monthly payments would be 10% of their discretionary income. On IBR, if your loans are older (disbursed before October 1, 2014), your monthly payments would be 15% of your discretionary income, making your payments higher. But if your loans were taken out on or after July 1, 2014, you are eligible for IBR capped at 10% of your discretionary income — the same as PAYE.
Do IBR and PAYE qualify for Public Service Loan Forgiveness (PSLF)?
Yes, both IBR and PAYE qualify as repayment plans for Public Service Loan Forgiveness. To be eligible for PSLF, you need to work full-time in public service for a qualifying non-profit or government organization. PSLF offers forgiveness after 120 qualifying payments.
What happens to my loans if PAYE is eliminated?
If you have not switched to a new plan before PAYE is eliminated on July 1, 2028, you will be automatically transitioned by your loan servicer into another repayment plan. If you’d like to choose the plan yourself, switch to IBR or RAP by June 30, 2028.
Photo credit: iStock/Dejan Marjanovic
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