‘Under current Education Department guidance, [PAYE and ICR] will accept enrollment until July 1, 2027′(Image credit: Andrii Dodonov / Getty Images)After closing enrollment in July, the Department of Education has now reopened two of its income-driven repayment plans: Pay as You Earn and Income-Contingent Repayment. As of Dec. 16, 2024, borrowers can once again enroll in these plans, which allow those with federal student loans to adjust their monthly loan payments based on their income and family size, potentially lowering the amount of payments due.Initially, the Department of Education’s plan was “phasing out the two plans in favor of an alternative with better terms,” instead encouraging them “to sign up for the administration’s Saving on a Valuable Education program, also known as SAVE,” said The New York Times. But after the SAVE plan faced numerous legal challenges, the department said in an announcement that it had decided to “‘give borrowers more breathing room on their student loans’ while the department continued ‘vigorously defending the SAVE Plan in court,'” said the outlet.As it now stands, “under current Education Department guidance, [PAYE and ICR] will accept enrollment until July 1, 2027,” said NerdWallet. Here is what to know about the plans.Subscribe to The WeekEscape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
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Sign up for The Week’s Free NewslettersFrom our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.What is PAYE?With PAYE, “borrowers don’t have to make any loan payments if they live alone and make less than $22,590 a year or $46,800 for a family of four,” said USA Today. Borrowers who make above those thresholds must “pay 10% of their monthly income.”But in either case, said USA Today, borrowers can secure “full relief after 20 years of payments,” meaning their remaining student loan debt is forgiven.What is ICR?With ICR, there “is no income requirement to be eligible for ICR and borrowers who make higher salaries are still eligible,” which makes it “a good option for those who want to free up some money in their monthly budget, even if they can afford their current monthly payments,” said LendEDU, an online student loan marketplace.Similarly to PAYE, payments are determined based on a borrower’s income and family size. The repayment period is 25 years.Should you switch to PAYE or ICR?In figuring out whether either of these plans make sense for you, “start with the Education Department’s loan simulator,” said NerdWallet, which “connects with your studentaid.gov account to estimate your monthly bills, overall repayment costs and potential forgiveness timeline under different repayment plans, including PAYE and ICR.” Keep in mind that “switching plans could increase y
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