PAYE and ICR student loan plans reopen: Should you enroll?

By Eliza Haverstock, NerdWallet

As of Dec. 16, federal student loan borrowers can once again enroll in two income-driven repayment plans — Paye as You Earn (PAYE) and Income-Contingent Repayment (ICR), according to an Education Department spokesperson.

The department previously closed all new PAYE enrollment (and limited ICR enrollment) in July 2024. Under current Education Department guidance, the plans will accept enrollment until July 1, 2027. Like all income-driven repayment (IDR) options, these two plans base your monthly student loan payments on your income and family size and extend your repayment term from the standard 10 years to 20 or 25 years. After the repayment term, any remaining debt is forgiven.

The move to reopen the repayment plans is in response to lawsuits that blocked the newest income-driven repayment plan, Saving on a Valuable Education (SAVE), and put 8 million borrowers in an indefinite payment pause. During this pause, or administrative forbearance, interest is not growing on borrowers’ balances and no payments are due — but borrowers aren’t earning any credit toward forgiveness.

If you’re on the SAVE plan, switching to PAYE or ICR could allow you to start building credit toward forgiveness again — but your payments could increase compared to what you owed under SAVE. Here’s how to know if you should switch your repayment plan.

Working toward PSLF or IDR forgiveness? Consider PAYE

Eligible SAVE borrowers aren’t building any credit toward the 10-year (120-payment) Public Service Loan Forgiveness (PSLF) finish line right now. Switching to PAYE will resume credit toward forgiveness. This impacts teachers, government workers and many nonprofit employees.

Don’t delay the switch. Time spent in the SAVE forbearance could shrink eventual forgiveness amounts for borrowers who are early in their PSLF journey, says Jill Desjean, senior policy analyst at the National Association of Student Financial Aid Administrators.

“Especially while their incomes might be lower early on, the longer they wait to make their payments on their loans, they’re making more money, and their payments will be higher, meaning less forgiveness,” she says.

PSLF-eligible SAVE borrowers with close to 120 payments are also stuck in a holding pattern.

“People who are close to Public Service Loan Forgiveness and only have a few payments left might want to consider jumping out of the SAVE program to PAYE. That might be a smart idea to finish,” says Daniel Collier, assistant professor of higher and adult education at the University of Memphis, who focuses on student debt and income-driven repayment.

Also, consider switching plans if you’re counting on income-driven repayment (IDR) forgiveness — especially if you’re close to the forgiveness threshold. This forgiveness is available to all federal student loan borrowers, regardless of profession. You can get IDR forgiveness after 20 years on PAYE, or 25 years on ICR.

Other reasons to switch from SAVE to PAYE

PAYE could also be a good fit if you’re in any of these situations:

• You were enrolled in PAYE before switching to SAVE. If you were on the PAYE plan before, you may already be comfortable with the plan and generally know what to expect.
• You have graduate school debt. You can get forgiveness after 20 years of payments on PAYE if you have any graduate school loans, compared to 25 years on other plans, like SAVE.
• You expect to earn a high income in the future. PAYE payments are capped at 10% of your discretionary income, but even if your earnings grow in the future, payments will never be higher than what they would be under the standard 10-year repayment plan. Most other IDR plans don’t have this payment ceiling, which can give some high-earners very large student loan bills.
• You’re eligible for PAYE. If you had no outstanding direct loan or FFEL Program loan debt as of Oct. 1, 2007, and you took out a direct loan on or after Oct. 1, 2011, you can qualify for PAYE. You also must have a partial financial hardship to get on the plan.
• You’re ineligible for New IBR. The New IBR plan is almost identical to PAYE, but it requires that you originally took out a student loan on or after July 1, 2014.

PAYE is a better choice than ICR for most borrowers, Desjean says. PAYE offers lower monthly payments (10% of income) and a quicker path to IDR forgiveness (20 years), compared to the ICR plan (20% of income and 25 years to forgiveness). However, ICR is the only income-driven repayment plan available to borrowers with parent PLUS loans.

Reasons to stay with SAVE during the payment pause

There are compelling reasons to stay in SAVE, especially if you’re not aiming for any student loan forgiveness. The current interest-free payment pause could allow you to put extra money toward more pressing financial goals or high-interest debt, like credit card bills.

“Borrowers might say, ‘okay, great, I’m saving on my student loans. I’ll put some money toward retirement, or toward my kids’ education, or paying off some other debt’,” Desjean says.

Or, you could take this opportunity to pay off your student debt more quickly. With no interest accruing, lump-sum payments will go farther toward paying off your principal balance. You’ll also pay less money overall.

Use a student loan payoff calculator to find out how fast you can get rid of your loans.

The decision to switch from SAVE is also complicated by unknowns ahead, including:

• To what extent the SAVE plan will survive legal challenges, if at all.
• If the REPAYE plan (SAVE’s predecessor) could return.
• If and how the incoming Trump administration will change student loan repayment, including IDR plans.
• How the Trump administration will manage existing forgiveness programs, including PSLF.

Determine the best option for you

Just because you can switch plans now, doesn’t necessarily mean you should. Evaluate your student loans and overall financial situation to determine your best route forward. You have until July 2027 to enroll in PAYE and ICR, under current guidance.

“Take your time to make an informed decision,” Collier says. “Everyone needs to go get well-informed on what a potential switch would do for their finances, and then make that determination.”

Start with the Education Department’s loan simulator. This tool 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. Switching plans could increase your monthly payments, depending on your income. You can also call your federal student loan servicer for guidance.

Desjean suggests reaching out to your college’s financial aid office, even if you left school years ago.

“When I worked in aid offices, past students contacted me all the time about things like, ‘which repayment plan should I pick?’,” Desjean says. “Financial aid administrators know a lot about this. You can describe your exact circumstances. I think it’s probably even better than calling the servicers, sometimes.”

When you’re ready to apply for a new IDR plan, go to studentaid.gov/IDR.

Eliza Haverstock writes for NerdWallet. Email: ehaverstock@nerdwallet.com. Twitter: @elizahaverstock.

The article PAYE and ICR Student Loan Plans Reopen: Should You Enroll? originally appeared on NerdWallet.