Income-based repayment plans for grad school loans | Earnest

A guide to income-driven repayment plans for grad school loans

By Sasha Bulatskaya | Published on March 30, 2026

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Investing in a grad school degree can take your career and salary to the next level. Unfortunately, many advanced degrees, like medical school, law school, or MBAs, come with hefty price tags. Additionally, many professions that require expensive degrees don’t pay well until a few years after you’ve been in the field. Income-based repayment¹ plans make it easier for low-income earners to manage student loan payments. But things can get tricky if your cash flow suddenly increases, for example, if you’re a medical resident and you start to make your full doctor’s salary.

In this post, we’ll explore how income-driven repayment plans can provide relief if you have a high loan balance, what happens when you start making more money, and your alternatives if an IDR plan isn’t for you.

The basics of income-driven repayment (IDR) plans

If you’re not familiar with income-driven repayment plans*, they calculate your monthly student loan payments based on a percentage of your discretionary income. Your federal student loan payment amount can go up or down depending on changes in your income, which can be a huge help if your financial situation declines. It’s a way to lower payments for student loan borrowers, especially for those with low income or large amounts of student debt.

According to the Department of Education, there are two subcategories of IDRs, which may be referred to as income-based repayment plans (IBR) and income-contingent repayment plans (ICR). This can get confusing, so think of IDRs* as an umbrella and IBRs and ICRs as categories sitting under it.

Here’s a quick look at each plan:

SAVE Plan:** This plan uses your income and family size to determine your payments. If you have a low income, this is a great plan but if your income goes up, so will your payments. In some cases, you might even pay more on this plan than on your standard repayment plan.

PAYE Plan: This plan uses your income and family size to determine how much you’ll pay, but your payments will never be higher than on the standard 10-year payment plan.

IBR Plans: Starting September 2024, this will be the only IDR plan that allows you to make income-driven payments while your loans are in default.

ICR Plan: This plan uses 20% of your discretionary income. However, you cannot enroll in this IDR after July 1, 2024, unless you are the exception.

Can medical residents qualify for IDR plans?

Yes, medical residents can qualify for IDR plans. The average medical resident salary in the U.S. is a little over $60,000 with the length of residency somewhere between 3 - 9 years, depending on your specialty. The average medical school debt was over $200,000 in 2023 according to the Education Data Initiative.

This means that for the first few years, a medical resident isn’t making much money while paying off double six figures in student loan debt. In this situation, an income-driven repayment (IDR) plan could keep payments low. And if you’re on the SAVE** Plan, the government will cover leftover interest if you make your full monthly payments.

However, as soon as your income goes up, so will your student loan payments.

Can you use an IDR if you have grad school loans?

It depends on the type of loan you have. Most federal borrowers qualify for IDR repayment plans but in some cases, you may need to consolidate your student loans first before you can sign up.

Loans that are eligible for IDRs:

Loans that may be eligible if consolidated first:

Loans that are not eligible:

Does interest continue to collect if I sign up for an IDR?

Yes, under most IDR plans interest will continue to collect on your loan. This is known as accrued interest, and it could keep you in debt longer. Some plans such as the SAVE Plan** have a benefit where the government will pay leftover interest if you make the full monthly payment.

Can you be denied an IDR based on income?

It’s possible to be denied an IDR but not based on income. If your loan servicer doesn’t grant your IDR request, they’ll list the specific reason(s) in their response to your application.

IDRs have many benefits while your salary is low

Income-driven repayment plans make federal student loan payments more affordable and offer other benefits. Under these plans, loans are forgiven after 20-25 years of payments. If you need to pause payments, you also have access to Public Service Loan Forgiveness (PSLF), federal deferment, and forbearance.

This is a great benefit if you have a high student loan balance but choose to pursue a less lucrative career path, such as working at a non-profit. If you put your degree to use in public service or non-profit work, you can sign up for PSLF, and your loans will be forgiven after 120 qualifying payments. However, you must be employed full-time with an eligible employer and on the correct repayment plan. Although it’s not fair, if you miss either of these details you could spend years paying your loans only to find out you don’t qualify for forgiveness.

What happens to your IDR payments if your salary goes up

The primary purpose of an IDR is to get your lowest monthly payment. While these student loan repayment plans benefit those with lower incomes, those making a good salary may not get a reduced payment. In some cases, your payment may actually be higher than on the 10-year standard payment plan, presenting a problem if you work in a field with high salary growth. And, your loan balance may also increase from accrued interest.

The formula used to calculate your payments takes into account your income, family size, and state of residence. If you earn above a certain threshold, you might not see much reduction in your monthly payments, or you might even pay more.

IDRs have income tax implications too

With an income-driven plan, any remaining balance on your loans after 20 or 25 years of qualifying payments may be forgiven. However, the IRS sees this forgiven amount as taxable income. So, if you have a high loan balance and are on track for loan forgiveness, you could face a hefty tax bill down the road.

Refinancing could be a better alternative

If you’re at the point where an IDR isn’t saving you any money, refinancing your student loans with a private lender could help. Refinancing will allow you to change your loan servicer and select a new repayment period and monthly payment amount. Most borrowers refinance to get a lower interest rate to pay off their loans faster. Some use refinancing to lower their payments, but this usually results in a longer term.

In some cases, it’s possible to get both lower payment and interest rate without extending your repayment timeline–it depends on your financial situation and credit score.

At Earnest, we have a refinancing calculator that acts like a loan simulator. You can enter a new rate and find out if you’ll save with refinancing. You can get a free rate check in minutes and see if it makes sense for you. When comparing refinancing companies, see what kind of repayment options they offer and their customer service ratings. We allow our clients to pick the payment, rate, and repayment term combo that gets them closer to their goals.

If you have federal student loans, consider your options carefully

Federal student loan borrowers should be aware that refinancing their loans will convert them into private student loans. Once your federal loans become private, you won’t be able to use any federal student aid such as income-driven repayment plans*, student loan forgiveness, or any other government programs.

Always remember your financial goals

It’s crucial to weigh the advantages and disadvantages based on your situation. If you're going to be making good money, evaluate whether an income-based plan aligns with your repayment strategy. For many high earners, refinancing and aggressively paying down their loans could be a more practical approach. If you have the income to pay off your loans at a faster rate, most financial experts will advise you to do it so that you can be free of student debt.

About the Author

Sasha Bulatskaya

Sasha is the Senior Manager of Brand and Content at Earnest. She has been writing for ten years and has been focused on educational finance and financial aid for over three. Her passion for mission-driven companies brought her to Earnest in 2020, and she's been helping make student finance more accessible ever since. She strives to demystify personal finance and student loans to help borrowers make the best decisions for their financial situation.

Disclaimer

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.