Income-driven student loan repayment plans have resumed. What to know

The Department of Education is reopening three revised income-driven student loan repayment plans just weeks after the agency suspended the programs, the agency announced Wednesday.

IDR loan repayment and consolidation programs afford borrowers with case-specific repayment plans based on their discretionary income and family size.

The programs, which were meant to ease the burden of student loans, extend the repayment period from the standard 10 years to 20 or 25 with the promise of forgiving the leftover debt at the end of that period. They also allow for adjustments based on changes in economic status. 

The agency closed application portals and paused application processing for four of its most affordable programs in early March after months of Republican backlash against a Biden-era loan repayment plan and an injunction from a U.S. appeals court blocking the program.

In response, the American Federation of Teachers and the Student Borrower Protection Center sued the Trump administration, arguing the agency misinterpreted the injunction and illegally blocked borrowers from accessing the affordable programs.

In its announcement, however, the ED claimed that the injunction not only prohibited Joe Biden's Saving on a Valuable Education program, but parts of the other three as well, requiring the agency to temporarily suspend applications while it revised them in accordance with the ruling.

Borrowers can now apply for three types of income-based repayment programs: Income-Based Repayment (IBR), Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) Plans. Borrowers may also apply to consolidate their loans through a separate application form.

Here's what to know about the three plans.

What is Income-Based Repayment (IBR)?

All direct subsidized and unsubsidized loans, including the now-defunct Family Federal Education Loans, are eligible for the income-based repayment plan.

IBR allows borrowers to dedicate a specific portion of their discretionary income to their loan repayment every month based on when they took out the loan.

Those who became new borrowers on or after July 1, 2014 are required to put 10% of their discretionary income toward monthly payments. Those who borrowed before are required to put 15% of their discretionary income.

Under IBR, discretionary income is calculated as the difference between a borrower's annual income and the U.S. Department of Health and Human Services poverty guideline for each person's family size and state of residence.

What is Pay As You Earn (PAYE)?

Direct subsidized, unsubsidized and consolidated loans are eligible for Pay As You Earn, or PAYE, though you must qualify as a new borrower to be eligible.

To qualify as a new borrower, one must:

• Have had no outstanding balance on a Direct or Federal Family Education Loan when a Direct or FFEL Program loan was received on or after October. 1, 2007
• Have received a Direct loan — subsidized, unsubsidized or direct PLUS loan — disbursement on or after Oct. 1, 2011, or a Direct Consolidation loan based on an application that was received on or after that day

Borrowers enrolled in the PAYE plan will be required to dedicate 10% of their discretionary income — calculated the same way as that under the IBR plan — to their monthly loan payments. Also similar to IBR, a borrower's monthly payment will not exceed the amount the standard repayment plan would require.

What is Income-Contingent Repayment (ICR)?

The same kind of loans as those listed in the PAYE plan — direct subsidized, unsubsidized and consolidated — are eligible for Income-Contingent Repayment.

A borrower's monthly payment amount is the smaller of two figures under ICR:

• 20% of their discretionary income
• The amount they would pay on a 12-year fixed repayment plan, adjusted based on their income.

Unlike the other two newly-renovated plans, discretionary income under ICR is the difference between a borrower's annual income and 100% of the poverty guideline.