IBR and PAYE Payment Caps Explained: Protecting High-Income Borrowers

Income-driven repayment (IDR) plans help federal student loan borrowers avoid unmanageable payments. Generally, as your income increases, so does your monthly payment. However, IDR plans like Income-Based Repayment (IBR) and Pay As You Earn (PAYE) offer a safeguard by capping payments at a level comparable to the 10-Year Standard Repayment Plan.

Having a maximum payment cap is especially valuable for borrowers who expect a rapid increase in income, such as doctors and dentists. Keep reading to learn how to calculate your payment cap on IBR and PAYE.

Which IDR plans have a payment cap?

Borrowers with federal student loans can choose from four income-driven repayment plans. But only IBR and PAYE have capped payments, which require a “partial financial hardship” to qualify. This basically means your IDR payment can’t exceed the calculated payment under a 10-Year Standard Repayment Plan to be eligible.

An easy way to get an idea of whether you’d qualify for a partial financial hardship is to look at roughly 1% of your loan balance. For example, a single borrower who owes $200,000 in federal loans will see a payment cap somewhere in the $2,000 per month range. That means your IBR or PAYE payment must fall below this threshold to be eligible. More on the actual calculations later. 

After enrolling in IBR or PAYE, your monthly payments will continue to increase with your income until you hit your payment cap. Then, you can ride out monthly payments at that maximum payment cap — regardless of how much money you make.

IDR Plan	Capped Payments	Payment (based on discretionary income)	Forgiveness Timeline
IBR plan	Yes	10% to 15%	20 to 25 years
PAYE plan	Yes	10%	20 years
SAVE plan	No	5% to 10%	20 or 25 years
ICR plan	No	20%	25 years
Old REPAYE plan (Currently not available)	No	10%	20 to 25 years

IBR and PAYE payment caps allow borrowers to still get loan forgiveness, such as Public Service Loan Forgiveness (PSLF), even if they have a super high income. It acts as a payment ceiling, allowing for more affordable student loan payments.

How does the payment cap work for IBR and PAYE?

While already enrolled in the IBR and PAYE plans, your payment can’t exceed what you’d pay under the 10-Year Standard Repayment Plan. The Department of Education determines your 10-Year Standard payment amount using the greater of either:

• Your loan balance when entering repayment for the first time (ever or when you consolidated).
• Your loan balance when you initially applied for income-driven repayment.

For example, if you have several forbearance periods early on and finally apply for income-driven repayment after accruing a ton of interest, your payment cap is going to be higher because your loan balance grew. But if you had applied for an IDR plan immediately after graduation, your original loan balance would be used when calculating your IBR or PAYE payment cap.

You can calculate your IBR or PAYE payment cap in a few ways:

1. Check with your loan servicer. Ask what your maximum payment could be on PAYE or IBR. You can also ask what your 10-Year Standard Repayment monthly payment would be.
2. Estimate the payment amount yourself. Let’s say you applied for income-driven repayment five years ago. You’ll need to look at your loan balance from that same time period. Then, you’ll calculate what it would have taken to pay that balance off amortized over 10 years.
3. Use our income-based repayment calculator. Compare existing IDR plans and determine your payment cap for IBR and PAYE based on the projected 10-Year Standard payment. The example below shows that a single borrower with $250,000 in federal debt has a payment cap of $2,776. They can rest assured that their IBR or PAYE payment won’t increase beyond that even if they start earning $400,000 or more.

Can I be kicked off IBR or PAYE if my income exceeds the payment cap?

Thankfully, no. Once you’re on IBR or PAYE, your loan servicer can’t kick you off based on your income. But you might receive some conflicting communication that might make you think you’re no longer eligible.

Let’s say you’re earning a lot more money on IBR or PAYE. You go to recertify your income, and your monthly payment goes above that 10-Year Standard Repayment payment cap. Your loan servicer will likely send a letter saying you’ve hit the maximum payment cap and are no longer eligible to make payments based on income. This letter can be very misleading. It often results in borrowers switching plans because they think they’re ineligible for their existing IDR plan. But they can’t kick you off IBR or PAYE if you’re already on it. Period.

If you find yourself in this situation, ignore the letter. You’ll continue making payments based on your payment cap until you reach loan forgiveness status — either with PSLF or long-term IDR forgiveness. Note that in some cases, you could potentially pay off your balance before being eligible for forgiveness.

Common borrower question: Can’t I just switch back to the 10-Year Standard Repayment Plan?

Our consultant team often has borrowers ask if they can just switch back over to the 10-Year Standard Repayment Plan once their income increases. Technically, you can. But it’s not straightforward in the way you think. Here’s why.

Borrowers with consolidated loans

Once you consolidate, the Standard Repayment Plan extends out according to the balance size. This means your Direct Consolidation Loan could extend out up to 30 years, depending on your loan balance. For example, if your student loan balance is over $60,000, the amortized Standard Repayment Plan becomes 30 years instead of 10 years. 

How does this play out for borrowers with consolidated loans?

Let’s say you’re a medical resident making $65,000 right now, so it might make sense to be on an IDR plan. But your payment is going to be much higher in several years when you’re earning your full attending salary of $300,000. 

Some borrowers in this situation assume they can just switch back to the 10-Year Standard Repayment Plan to avoid higher monthly payments but still be eligible for PSLF. Unfortunately, that’s just not possible. Yes, you can technically apply for the Standard Repayment Plan. But your payment won’t be based on 10 years — which is what makes a Standard 10-Year plan eligible for PSLF. Your payment is going to be based on the 30-year amortized schedule because you consolidated your loans. 

Therefore, you’re better off staying on IBR or PAYE and using the payment cap to your advantage.

Borrowers with unconsolidated loans seeking PSLF

If you’ve never consolidated your student loans and expect significantly higher income in the future, switching to the 10-Year Standard Repayment Plan at a later date isn’t going to work either. 

When you apply for the 10-Year Standard Repayment Plan, the Department of Education will take into account any time already spent in repayment. If you’ve been on an IDR plan for five years and you decide to switch over, they’re going to treat your loans as if you only have five years left of the Standard Repayment because you’ve already paid for five. Therefore, they will amortize your remaining balance and calculate your payments based on paying your loans off in the final five years of that 10-year timeline.

In this scenario, you wouldn’t be able to take advantage of PSLF loan forgiveness. Instead, you’re going to end up paying off your full balance because the system is set up to do the math to pay it off within what’s left of the 10 years. Again, utilizing the IBR or PAYE payment cap is your best path forward for PSLF if you expect to make a high income.

Potential payment cap mishap for borrowers who consolidated

Let’s say you’ve been on an IDR plan since 2012, but you consolidated your loans in 2018. The new Direct Consolidation Loan is essentially a brand new loan, so it wipes the slate clean. Therefore, your payment cap is going to be based on the new consolidation loan balance from when you entered IDR repayment again in 2018 — not the payment cap from 2012 before you consolidated.

This quickly becomes problematic for high-income borrowers with consolidated loans when they apply for an income-driven plan. If their income is higher than what the Standard Repayment Plan payment cap would produce, they no longer have a partial financial hardship. Therefore, they won’t be eligible for IBR or PAYE.

Looking ahead, high-income borrowers who were encouraged to consolidate and enroll in the SAVE plan could be in serious trouble. If the SAVE plan is repealed (highly likely), high-income borrowers may not be eligible for IBR or PAYE anymore — potentially leaving them with unmanageable (and PSLF-ineligible) student loan payments.

Our team of student loan experts have consulted on over $2.6 billion of student debt and are available to help in these situations. Get in touch for a custom repayment plan that factors in possible student loan changes down the pipeline to give you peace of mind.