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If you’re struggling to manage your student loans, signing up for an income-driven repayment plan or refinancing your loans might be a good idea. Before you choose one option over the other, it’s important to understand how they work along with their pros and cons.
Here’s what you should know about income-driven repayment vs. refinancing student loans:
- Income-driven repayment: What it is and how it can help
- Student loan refinancing: What it is and how it can help
- Income-driven repayment vs. refinancing
- When to refinance student loans
- When you shouldn’t refinance student loans
- Frequently asked questions
Income-driven repayment: What it is and how it can help
Income-driven repayment (IDR) plans are an option for federal student loan borrowers. Under an IDR plan, your payments are based on your income — usually capped at 10% to 20% of your discretionary income.
Additionally, you could have any remaining balance forgiven after 20 to 25 years, depending on the plan. Keep in mind that you could owe federal income tax on any amount forgiven under an IDR plan.
There are four main IDR plans available:
- Income-Based Repayment (IBR): To qualify for IBR, you must have demonstrable financial need. Under this plan, your payments are capped at 10% or 15% of your discretionary income and will never be higher than what you’d pay on the 10-year standard repayment plan. Any remaining balance could be forgiven after 20 or 25 years, depending on when you took your federal loans out.
- Pay As You Earn (PAYE): Like with IBR, you must have financial need to be eligible for the PAYE plan. On this plan, your payments are capped at 10% of your discretionary income and will never be higher than what you’d pay on the 10-year standard repayment plan. Additionally, you could have any remaining balance forgiven after 20 years.
- Revised Pay As You Earn (REPAYE): Unlike IBR and REPAYE, REPAYE doesn’t require you to have financial need to sign up. If you sign up for REPAYE, your payments will be 10% of your discretionary income — though keep in mind that there’s no cap on your payments. Additionally, any remaining balance could be forgiven after 20 to 25 years, depending on whether you used your loans to pay for undergraduate or graduate studies.
- Income-Contingent Repayment (ICR): On the ICR plan, your payments will be 20% of your discretionary income (or what you’d pay on a 12-year income-adjusted plan), and you could have your remaining balance forgiven after 25 years. ICR is also the only income-driven plan available to Parent PLUS Loan borrowers so long as they’ve consolidated their PLUS Loan into a Direct Consolidation Loan.
Because IDR plans extend your repayment term, you’ll likely be able to lower your monthly payment — though you’ll also pay more in interest over time. But keep in mind that at the end of your repayment term, you could have any remaining balance forgiven.
You can visit StudentAid.gov to estimate what your payment might be under each plan, given your income, household size, and federal student loan balance.
For example: Say you’re single and living in the U.S., and you earn $30,000 per year with a projected annual increase of 5%. Additionally, you have a federal student loan balance of $70,000 with an average weighted interest rate of 6%.
If your loans were taken out after July 2014 and you sign up for IBR, you would make monthly payments ranging from $99 to $398 and would end up paying a total of $53,725 over 20 years — nearly $40,000 less than the $93,257 that you’d pay on a standard 10-year plan. Following this, you’d be eligible for $100,574 of loan forgiveness.
Learn More: PAYE vs. REPAYE: Which Repayment Plan Is Right for You?
How to apply for income-driven repayment
If you’d like to sign up for an income-driven repayment plan, follow these three steps:
- Fill out an Income-Driven Repayment Plan Request. To do this, you can either visit StudentAid.gov or request an application through your loan servicer. Be prepared to provide information regarding your job, family size, and marital status.
- Provide proof of income. You can add your income digitally to the application by using the IRS data retrieval tool. If your income has changed or you haven’t filed taxes in the last several years, you might be able to provide a pay stub instead. You can also certify that you don’t have an income if you’re not currently working.
- Wait for your request to be processed. It could take several days to several weeks for your IDR application to be processed. In the meantime, be sure to continue making your student loan payments to avoid delinquencies.
Check Out: Federal Student Loans and COVID-19: What You Need to Know
Student loan refinancing: What it is and how it can help
Student loan refinancing is the process of taking out a new private loan to pay off your old loans, leaving you with just one loan and payment to manage.
Note that this is different from federal student loan consolidation, which lets you combine multiple federal student loans while extending your repayment term up to 30 years.
Keep in mind: While you can refinance both federal and private loans, refinancing federal student loans will cost you federal protections, including access to IDR plans and student loan forgiveness programs.
There are several potential benefits offered by refinancing, including:
- Lower your interest rate: Depending on your credit, you might qualify for a lower student loan interest rate if you refinance. This could save you money on interest as well as possibly help you pay off your loans faster.
- Reduce your monthly payment: If you opt to extend your repayment term through refinancing, you could lower your monthly student loan payment and lessen the strain on your budget. Just remember that choosing a longer term means you’ll pay more in interest over the life of your loan.
- Combine multiple student loans: It can be difficult to keep track of multiple loans with different interest rates and repayment terms. Refinancing lets you combine your student loans so you only have one loan and payment to worry about.
How much you could save through refinancing depends on several factors, including your credit. In general, the better your credit, the lower your interest rate will be — and the more you’ll likely save over the life of your loan.
For example: Say you have $50,000 in student loans with an interest rate of 6% and a 10-year repayment term. With this rate and term, you’d end up paying $555 monthly with a total repayment cost of $66,612.
But if you refinanced your loans to a 5% interest while keeping the 10-year repayment term, your payments would go down to $530 per month, and you’d pay $63,639 in total — almost $3,000 less than what you’d owe if you didn’t refinance.
Learn More: Private Student Loan Consolidation
How to apply for student loan refinancing
If you’ve decided to refinance your student loans, follow these four steps:
- Compare lenders. Be sure to compare as many lenders as possible to find the right loan for you. Consider not only interest rates but also repayment terms, any fees charged by the lender, and eligibility requirements.
- Pick a loan option. After you’ve done your research, choose the loan option that works best for you.
- Complete the application. Once you’ve picked a lender, you’ll need to fill out a full application and submit any required documentation, such as tax returns or pay stubs.
- Manage your payments. If you’re approved, continue making payments on your old loans while the refinance is processed. Afterward, you’ll begin making payments on the new loan. You could also consider signing up for autopay so you won’t miss any payments in the future — many lenders offer a rate discount to borrowers who opt for automatic payments.
Tip: You’ll typically need good to excellent credit to qualify for refinancing. A good credit score is usually considered to be 700 or higher. There are also several lenders that offer student loan refinancing for bad credit — however, these loans usually come with higher interest rates compared to good credit loans.
If you’re struggling to get approved, consider applying with a creditworthy cosigner to improve your chances. Even if you don’t need a cosigner to qualify, having one could get you a lower interest rate than you’d get on your own.
If you’re ready to refinance your student loans, remember to consider as many lenders as you can to find a loan that suits your needs. Credible makes this easy — you can compare your prequalified rates from our partner lenders in the table below in two minutes.
| Lender | Fixed rates from (APR) | Variable rates from (APR) | Loan amounts | Repayment terms (years) | Cosigners allowed |
|---|---|---|---|---|---|
 Credible Rating  Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.   View details | 4.54%+ | N/A | $7,500 up to up to $200,000 (larger balances require special approval) | 10, 15, 20 | Yes |
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.  View details | 2.15%+ | 1.87%+ | $10,000 up to $250,000 (depending on degree) | 5, 7, 10, 15, 20 | Yes |
| |||||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details | 2.39%+<sup1 | 1.87%+1 | $10,000 to $500,000 (depending on degree and loan type) | 5, 7, 10, 15, 20 | Yes |
| |||||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details | 2.99%+2 | 2.94%+2 | $5,000 to $300,000 (depending on degree type) | 5, 7, 10, 12, 15, 20 | Yes |
| |||||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details | 2.16%+ | 2.11%+ | $5,000 to $500,000 | 5, 7, 10, 15, 20 | Yes |
| |||||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details | 3.91%+5 | 1.81%+5 | $7,500 to $200,000 | 5, 10, 15, 20 | Yes |
| |||||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details | 2.58%+3 | 2.39%+ | Minimum of $15,000 | 5, 7, 10, 12, 15, 20 | Yes |
| |||||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details | 3.47%+4 | 2.42%+ | $5,000 – $250,000 | 5, 10, 15, 20 | Yes |
| |||||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.  View details | 2.74%+7 | N/A | Up to $300,000 | 5, 7, 10, 15, 20 | Yes |
| |||||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details | 3.05%+ | 3.05%+ | $10,000 up to the total amount of qualified education debt | 7, 10, 15 | Yes |
| |||||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details | 2.89%+ | N/A | $7,500 to $300,000 | 5, 8, 12, 15 | Yes |
| |||||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details | 3.29%+ | N/A | $7,500 up to $250,000 (depending on highest degree earned) | 5, 10, 15 | Yes |
| |||||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details | 2.74%+6 | 2.25%6 | $5,000 up to the full balance of your qualified education loans | 5, 7, 10, 15, 20 | Yes |
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| Compare personalized rates from multiple lenders without affecting your credit score. 100% free! Compare Now Trustpilot | |||||
| All APRs reflect autopay and loyalty discounts where available | 1Citizens Disclosures | 2College Ave Disclosures | 5EDvestinU Disclosures | 3 ELFI Disclosures | 4INvestEd Disclosures | 7ISL Education Lending Disclosures | 6SoFi Disclosures |
Income-driven repayment vs. refinancing
If you’re considering income-driven repayment vs. refinancing, here are some key points to keep in mind:
Income-driven repayment
- Lower payments: With an IDR plan, your payments are based on your income — which means they could be significantly lowered depending on how much you earn. Additionally, your repayment term could be extended up to 20 or 25 years, further reducing your payments.
- Lower interest rates: Signing up for an IDR plan doesn’t affect your interest rate.
- Qualifying loans: Almost any federal student loan is eligible for at least one of the four available IDR plans. Some plans — such as IBR and PAYE — require you to have financial need while others don’t.
- Forgiveness offered: Yes, you could have any remaining balance forgiven after 20 to 25 years, depending on the plan.
Student loan refinancing
- Lower payments: If you choose to extend your repayment term through refinancing, you could reduce your monthly payments. Just remember that this also means you’ll pay more in interest over time.
- Lower interest rates: Depending on your credit, you might get a lower interest rate through refinancing. This could save you hundreds or even thousands of dollars on interest over the life of the loan. It might also help you repay your loans ahead of schedule.
- Qualifying loans: Almost any federal or private student loan is eligible for refinancing — though remember that refinancing federal loans means you’ll lose access to federal benefits and protections.
- Forgiveness offered: No — unfortunately, private student loan forgiveness doesn’t exist. You’ll be responsible to repay your full student loan balance.
Check Out: How to Find Your Student Loan Balance
When to refinance student loans
While student loan refinancing might be the right move in some cases, it isn’t right for everyone. Here are a few situations when it could be a good idea to refinance:
- You can get a better interest rate. If you have good credit and can qualify for a lower interest rate, refinancing could be a good way to save money on your student loans.
- You need a lower monthly payment. If you’re struggling to make your student loan payments, you might be able to reduce them if you refinance and pick a longer repayment term. Just remember that you’ll pay more in interest this way.
- You have multiple student loans. Refinancing allows you to combine multiple student loans to streamline your repayment.
You can use our calculator below to see how much you could save by refinancing your student loans.
Step 1. Enter your loan balance
Loan balance ? Enter the remaining amount of the loans you’d like to refinance $
Step 2. Enter current loan information
Interest rate ? Enter the average annual interest rate of the loans you’d like to refinance % Monthly payment ? Enter the monthly amount you currently pay on your loans (or enter remaining term) $ Remaining term ? Enter the amount of time left to repay your loan (or enter monthly payment) years
Step 3. Enter your new loan information to start calculating your savings
Interest rate ? Enter an estimated new interest rate. % Monthly payment ? Enter the monthly amount to pay on your new loan (or enter new loan term) $ New loan term ? Enter the amount of time you have to repay your loan (or enter monthly payment) years Lifetime Savings Increased Lifetime Cost $ New Monthly Payment $ Monthly Savings Increased Monthly Cost $
If you refinance your student loan at % interest rate, you can save will pay an additional $ monthly and pay off your loan by . The total cost of the new loan will be $.
Does refinancing make sense for you?
Compare offers from top refinancing lenders to determine your actual savings.
Check Personalized Rates
Checking rates won’t affect your credit score.
When you shouldn’t refinance student loans
And here are some scenarios where refinancing might not be the best option:
- You have federal student loans. If you refinance federal student loans, you’ll lose access to your federal loan benefits. This is especially important to keep in mind if you think you might need access to income-driven repayment options or if you could qualify for loan forgiveness.
- You have poor credit. You’ll generally need good to excellent credit to qualify for refinancing — as well as to get the best interest rates. While you might still qualify with some lenders that work with borrowers who have bad credit, the loans offered by these lenders tend to come with higher interest rates.
- Your finances aren’t secure. Lenders want to see that you can afford to repay your refinanced loan, which could be difficult to prove if you have unstable income. Additionally, unlike federal loans, private loans don’t come with built-in protections like deferment and forbearance options, which could leave you in a rough spot if you’re facing financial hardship.
Tip: You don’t have to refinance your full student loan balance. For example, if you have both federal and private student loans, you could choose to refinance only your private loans.
This might help you pay off your private student loans faster while allowing you to maintain the protections of your federal loans.
If you’re wondering how long it’ll take to pay off your student loans, enter your current loan information into the calculator below to find out. Use the slider to see how increasing your payments can change the payoff date.
Enter loan information
Loan balance ? Enter the remaining balance of your loans $ Interest rate ? Enter the average annual interest rate of your loans % Loan term ? Enter the amount of time left to repay your loan years
What if you increased your monthly payment?
+ $0 Total Payment $ Total Interest $ Monthly Payment $
If you increase your payments by $ monthly on your $ loan at %, you will pay $ a month and pay off your loan by Jan 2021.
Does refinancing make sense for you?
Compare offers from top refinancing lenders to determine your actual savings.
Check Personalized Rates
Checking rates won’t affect your credit score.
Frequently asked questions
Here are the answers to several commonly asked questions regarding refinancing student loans vs. income-driven repayment:
Can you refinance student loans on income-driven repayment?
Yes, if you have federal student loans on an IDR plan, you can refinance them into a private student loan. Just remember that doing so means you’ll no longer have access to federal benefits and protections — including the ability to sign up for another IDR plan in the future.
Are student loans forgiven after 20 years?
If you sign up for an IDR plan, you could have any remaining balance forgiven after 20 to 25 years, depending on the plan you choose.
There are also several other federal student loan forgiveness programs with their own forgiveness timelines — for example, if you work for an eligible nonprofit or government organization and make qualifying payments for 10 years, you might qualify for Public Service Loan Forgiveness (PSLF).
Unfortunately, private student loans aren’t eligible for any forgiveness programs.
Learn More: How to Spot 6 Student Loan Forgiveness Scam Warning Signs
Which student loans can be forgiven?
Only federal student loans are eligible for student loan forgiveness programs, such as IDR forgiveness or PSLF.
However, there are other options that could help you more easily manage private student loans. For example, if you refinance your private loans, you might get a lower interest rate that could help you pay off your loans faster.
Will income-driven repayment hurt my credit score?
No, signing up for an IDR plan won’t hurt your credit score. In fact, it might actually help your credit score — for example, if you consistently make on-time payments under an IDR plan, you could see an improvement in your score over time.
Do I have to consolidate my student loans for income-driven repayment?
This depends on the type of federal student loans you have. Most federal student loans don’t require consolidation to be eligible for income-driven repayment. However, if you have a Parent PLUS Loan, you’ll need to consolidate it into a Direct Consolidation Loan before you’ll be eligible for the ICR plan.
Check Out: Best Lenders to Refinance Student Loans for Low-Income Earners
What happens if you don’t pay student loans?
Not paying your student loans can massively damage your credit and could come with fees or penalties, depending on the type of student loans you have.
Generally, once you’ve missed a payment, your student loan is considered delinquent. If you continue missing payments for a certain period of time, your loan will enter default — typically 270 days for federal student loans and 120 days for most private student loans. Once this happens, you could face several consequences, such as:
- Loan acceleration, which makes your entire past-due balance due immediately
- Loss of hardship benefits, such as deferment or forbearance
- Wage garnishment or withholding of tax returns, leaving you with less money
- Lawsuits and collections filed by private student loan lenders in an attempt to collect your past-due balance
Tip: If you think you might miss a student loan payment, reach out to your loan servicer or lender right away. They might have options available to you that can help prevent you from ending up in default.
How can I get the lowest interest rate on my student loan refinance?
There are a few ways to get a good interest rate when you refinance, including:
- Have good to excellent credit: In general, borrowers with good to excellent credit will qualify for better interest rates compared to borrowers with poor or fair credit. If you want to qualify for better rates, you might consider working to improve your credit before applying. A couple of ways to potentially do this include making on-time payments on all of your bills and paying down credit card balances.
- Apply with a cosigner: Not only can applying with a creditworthy cosigner make it easier to get approved for refinancing, but it could also get you a better interest rate than you’d get alone.
- Compare multiple lenders: To find the best interest rates, it’s important to compare your options from as many lenders as possible. This way, you can be sure you’re getting the most favorable rate and terms available to you.
Can you be denied income-driven repayment?
Yes, it’s possible to be denied income-driven repayment in certain circumstances. For example, if you have federal student loans that aren’t Direct Loans or are in default, then you won’t qualify for an IDR plan.
But if you consolidate your loans into a Direct Consolidation Loan or are able to get out of default, you could be eligible in the future.
Can you make too much money for income-based repayment?
No, income-driven repayment is available for most federal student loan borrowers no matter their income. However, keep in mind that you might not be eligible for every IDR plan if you make too much money — IBR and PAYE both require you to have financial need while REPAYE and ICR don’t.
If you decide to refinance your student loans, remember to consider as many lenders as you can to find the right loan for your situation. This is easy with Credible: You can compare your prequalified rates from multiple lenders in two minutes — without affecting your credit.
Find out if refinancing is right for you
- Compare actual rates, not ballpark estimates – Unlock rates from multiple lenders in about 2 minutes
- Won’t impact credit score – Checking rates on Credible won’t impact your credit score
- Data privacy – We don’t sell your information, so you won’t get calls or emails from multiple lenders
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Trustpilot About the author 
Taylor Medine is a Credible authority on personal finance. Her work has been featured on Bankrate, Experian, The Balance, Business Insider, Credit Karma, and more. She’s also the author of The 60-Minute Money Plan, a self-published intro to budgeting guide for people who hate budgeting.
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