Education Department to Widen Eligibility for Income-Based Repayment

The U.S. Department of Education is preparing to remove a long-standing barrier that kept many federal student loan borrowers, especially higher earners, out of the government’s Income-Based Repayment program. The agency recently confirmed that the requirement to demonstrate a “partial financial hardship” will be eliminated in December, following language included in former President Donald Trump’s most recent tax and spending package. Until the change is fully activated, loan servicers have been instructed to hold applications that would have been rejected under the previous rules.

IBR rules and payment structure

Income-Based Repayment, one of several income-driven repayment (IDR) options created by Congress in the 1990s, caps a borrower’s monthly bill at a fixed share of discretionary income and erases any remaining balance after a set period. Under current terms, most borrowers pay 10% of discretionary income, while those with older federal loans—generally disbursed before July 2014—pay 15%. Debt forgiveness arrives after 20 years for newer loans and after 25 years for older loans.

By eliminating the hardship test, the Education Department will open IBR to nearly all federal loan holders, according to higher-education analyst Mark Kantrowitz. Previously, borrowers had to fall below a specific income-to-debt ratio to qualify, leaving many professionals with stable salaries ineligible even if their payments consumed a significant portion of take-home pay.

Context: shrinking menu of affordable plans

The expansion of IBR comes as other low-cost repayment options are being curtailed. The same legislation that waived the hardship requirement also nullified the Biden administration’s Saving on a Valuable Education (SAVE) plan and set a sunset date of July 1, 2028, for two older IDR programs: Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE). Approximately 2.5 million borrowers are currently enrolled in ICR or PAYE, according to Kantrowitz’s estimates, and many will need to transition to a different plan over the next four years.

Borrowers in ICR are likely to see smaller monthly bills if they switch to IBR once eligibility broadens. For borrowers in PAYE who took out loans after July 1, 2014, the shift to IBR will probably leave payments largely unchanged because both plans already calculate bills at 10% of discretionary income. Even so, monthly obligations under IBR are expected to be higher than they would have been under the now-rescinded SAVE plan, which used a lower income percentage.

Future option: Repayment Assistance Plan

An additional IDR framework, the Repayment Assistance Plan (RAP), is scheduled to launch on July 1, 2026. RAP will forgive remaining balances after 30 years—longer than the timelines attached to IBR, PAYE, or ICR—but the extended horizon will reduce required monthly payments for some borrowers. Details on RAP’s exact calculation method have not been finalized, yet early guidance suggests it will offer the lowest bills among federal programs for individuals with comparatively small incomes and large debt loads.

Flexibility to switch plans

Borrowers retain the right to move between income-driven plans whenever their financial situation changes. Betsy Mayotte, president of the nonprofit Institute of Student Loan Advisors, noted that payment histories accrued under any IDR strategy count toward eventual loan forgiveness even after a borrower transfers to a new plan. The Education Department’s rules treat cumulative qualifying payments as portable, so switching from ICR or PAYE to IBR—or later to RAP—does not reset the forgiveness clock.

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Evaluating individual payment scenarios

Because IDR calculations rely on income, family size and loan balance, totals differ significantly from one borrower to another. The Education Department encourages borrowers to use the online loan simulator on the Federal Student Aid website to compare estimated bills across IBR, RAP and any remaining options. The tool factors in household earnings, state of residence and tax filing status to project monthly payments and long-term costs under each program.

Industry specialists recommend that borrowers who anticipate a rise in income weigh the trade-offs between lower short-term payments and the possibility of higher overall interest costs as time passes. Conversely, those expecting stable or modest earnings may prefer the security of a capped payment, even if it lengthens the payoff horizon.

Next steps for borrowers

Applications for IBR continue to be processed, but servicers will temporarily hold submissions that would previously have been denied until the hardship requirement formally disappears. Once the updated rules are active in December, affected applicants should automatically receive enrollment confirmation. Borrowers already in PAYE or ICR can submit a request to switch plans through their servicer’s online portal or by filing the standard income-driven repayment application.

For now, experts advise borrowers to review their current repayment status, update income documentation and monitor correspondence from their loan servicer as implementation milestones approach. The broadening of IBR eligibility, combined with the forthcoming introduction of RAP, represents a significant reshaping of the federal student loan landscape, altering payment calculations for millions of Americans.

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