PAYE and ICR Are Sunsetting in 2028: What Borrowers on Those Plans Should Do Now

By The Finnita Team

Pay As You Earn and Income-Contingent Repayment are being retired. The One Big Beautiful Bill Act, signed July 4, 2025, winds both repayment plans down in two steps: they close to new enrollment on July 1, 2026, and they end entirely by July 1, 2028. Borrowers already on PAYE or ICR can stay through the wind-down, and anyone still enrolled at the 2028 line will be moved automatically to Income-Based Repayment or the new Repayment Assistance Plan. A new federal loan taken out on or after July 1, 2026 cuts off access to both plans immediately. The sunset does not erase progress: payments already made keep their credit toward forgiveness, including Public Service Loan Forgiveness. But the dates decide the options, and the choice among staying, switching to IBR, and switching to RAP has real money attached. Here is the schedule, the decision framework, and what to do now.

What the new law does to PAYE and ICR

The One Big Beautiful Bill Act simplified the federal repayment menu, and PAYE and ICR are the plans it retires. The law keeps Income-Based Repayment open for loans made before July 1, 2026, creates the Repayment Assistance Plan as the income-driven plan for everything that comes after, and gives PAYE and ICR a fixed wind-down, part of the broader narrowing of repayment options that NPR detailed in December 2025. The Department of Education’s implementing regulation, finalized April 30, 2026, schedules the sunset of both plans for July 1, 2028. The change is one piece of a larger overhaul; Finnita’s summary of the federal student loan changes taking effect July 1, 2026 lays out the rest.

Getting in is the first deadline. PAYE and ICR stop accepting new enrollees on July 1, 2026, alongside the rest of the July 1 changes. The regulation’s text goes further for PAYE: a borrower who was repaying under PAYE on or after July 1, 2024 and changes to a different plan may not re-enroll, a condition The College Investor reads as locking out most borrowers who are not already on the plan. The Department’s own borrower guidance, meanwhile, says PAYE enrollment stays open until July 1, 2027. The regulation and the guidance do not match, and the safe reading is the earlier date: a borrower who wants PAYE should be enrolled before July 1, 2026, and a borrower already on it should think hard before leaving, because the road back may be closed.

The 2028 timeline

Two dates carry the schedule, and two years sit between them. On July 1, 2026, RAP launches, new enrollment in PAYE and ICR ends, and any federal loan first disbursed from that day forward, including a Direct Consolidation Loan, permanently routes all of a borrower’s loans to RAP. The two years that follow are the wind-down: borrowers already on PAYE or ICR keep their plan, keep their payment terms, and keep earning credit toward forgiveness. On July 1, 2028, both plans end.

Borrowers still enrolled at that point are transferred to IBR or RAP, depending on eligibility, as The College of New Jersey’s financial aid office explains in its plain-language summary of the changes. Parent PLUS borrowers who reached ICR through consolidation have a track of their own: the law lets them enroll in IBR if they were on an income-driven plan at any point between July 4, 2025 and June 30, 2028, per the Senate HELP Committee’s summary of the law, and RAP is not open to Parent PLUS consolidation loans at all.

An automatic move is not a catastrophe. It is a decision made without you, by a process that does not know your income, your family size, or how close you are to forgiveness. The point of the next two years is to make the choice deliberately.

Stay or switch: the decision framework

Four questions sort nearly every PAYE and ICR borrower.

How do the payments compare? PAYE charges 10 percent of discretionary income. IBR charges 10 or 15 percent of discretionary income depending on when you first borrowed. RAP charges 1 to 10 percent of total adjusted gross income, a broader base that often produces a higher monthly number than the discretionary-income plans. ICR is the expensive outlier: the lesser of 20 percent of discretionary income or an income-adjusted twelve-year amount. Most ICR borrowers who did not arrive by way of Parent PLUS consolidation can do better by moving.

What happens to unpaid interest when you leave? The plans treat a departure differently. Leaving PAYE does not add your unpaid interest to the principal; leaving IBR does, as the VIN Foundation’s guidance on the transition lays out. A borrower carrying years of unpaid interest gives up less by exiting PAYE than by exiting IBR, which matters whenever a later move is part of the plan.

Can you come back? Under the new regulation, no. A borrower who leaves PAYE after July 1, 2024 may not re-enroll, and both plans are closed to new enrollment after July 1, 2026. Staying put preserves an option that leaving destroys.

Where are you on the forgiveness clock? PAYE forgives at 20 years of qualifying payments, IBR at 20 or 25 years depending on your borrowing date, and RAP at 360 qualifying payments, about 30 years. The months you have already banked carry into whichever plan you land on, but the finish line moves with the plan, and a borrower fifteen years into a 20-year horizon should think carefully before trading it for a 30-year one. If you do not know which plan you are in today, settle that before anything else; Finnita maintains a separate field guide to identifying your federal repayment plan.

IBR is the likely home for most former PAYE borrowers

Income-Based Repayment is the survivor among the legacy income-driven plans, and for most PAYE borrowers it is the natural destination. It keeps accepting new enrollment after July 1, 2026 for loans made before that date, it qualifies for PSLF, and the One Big Beautiful Bill Act removed the partial financial hardship test that used to keep higher earners out. Finnita’s guide to income-driven repayment plans after the SAVE shutdown compares all of the plans in detail.

How good a home IBR is depends on your borrowing date. For a borrower whose first federal loan came on or after July 1, 2014, IBR matches PAYE: 10 percent of discretionary income and forgiveness at 20 years, so the move costs little beyond the capitalization risk on a later exit. For a borrower who first borrowed earlier, IBR runs 15 percent and 25 years, and the gap between those terms and PAYE’s is the strongest argument for staying enrolled while the calendar allows it. Many PAYE borrowers took their first loans between 2011 and 2014, which puts them on the wrong side of that line.

What RAP offers and what it costs

The Repayment Assistance Plan is the plan the new system is built around, and for some PAYE and ICR borrowers it will beat IBR. Payments run from 1 to 10 percent of adjusted gross income, scaled by income bracket and never below $10 a month, and each dependent takes $50 off the monthly bill. Interest your payment does not cover is waived rather than added to the balance, and when a payment retires less than $50 of principal, the government makes up the difference, so an on-time month always moves the balance down. RAP counts toward PSLF from its first day, per the Department’s implementation guidance.

The costs sit on the other side of the ledger. RAP’s base is total adjusted gross income, not the discretionary-income measure the legacy plans use, so its monthly number frequently lands above PAYE’s or IBR’s for the same earnings. And its 30-year path to forgiveness is the longest of any income-driven plan, a real cost for a borrower already deep into a 20-year clock. RAP fits best for borrowers whose balances have been growing, who would rather watch the balance shrink than chase the lowest possible payment, or whose income bracket keeps the payment percentage low.

What the sunset means for PSLF

PAYE and ICR remain PSLF-qualifying plans through their final two years. Every month you earn on them now keeps its credit, and switching plans does not reset the count: the 120 payments PSLF requires can be earned across any mix of qualifying plans. Where you stand on that count shapes the move.

If you are close to 120 on PAYE, staying through the sunset can carry you to the finish line on the formula you already know. If your 120th month lands after July 1, 2028, map the switch now and make it on your schedule rather than the Department’s.

If you are years from 120, the choice is mostly a cost question. All four plans qualify, so the math turns on what you pay each month between now and forgiveness, and a plan that charges more monthly leaves less for PSLF to forgive at the end.

Either way, file early. The Department’s processing queue held 530,295 pending income-driven repayment applications as of April 30, 2026, and the SAVE transition is pushing millions more borrowers into the same line this summer. A plan switch filed on your timeline beats one filed against a deadline. For the broader forgiveness picture, see Finnita’s complete guide to federal student loan forgiveness in 2026.

Why Finnita

The PAYE and ICR sunset is a plan-selection problem with a deadline attached, and choosing well after SAVE’s end, with two plans retiring and a new one launching, is harder than it was even three years ago. Finnita is the only service in the space that focuses exclusively on federal repayment and forgiveness enrollment. The work runs through a proprietary algorithm and human analysts who select the right plan for each borrower’s loans, income, and forgiveness position, not a one-size-fits-all default, and who then file the paperwork and manage the annual recertification that keeps the enrollment alive. Across all customers and all programs, Finnita’s enrollment success rate is 98 percent, and customers save an average of $468 per month. If Finnita cannot enroll you, you get 100 percent of your money back. The service is free to the employer. No refinancing. No credit checks. No new debt. Finnita is a Delaware Public Benefit Corporation. It works with hundreds of employers across education, healthcare, government, and nonprofit sectors, covering millions of eligible employees. Borrowers can check their projected savings in about 60 seconds at finnita.com.

Frequently asked questions

What happens if I am still on PAYE or ICR on July 1, 2028?

The plans end that day, and the Department of Education moves remaining borrowers into IBR or RAP based on eligibility. Parent PLUS borrowers who reached ICR through consolidation generally land in IBR, because RAP is not open to Parent PLUS consolidation loans. The automatic transfer puts you in a plan that works on paper, not necessarily the one that fits your income or your forgiveness timeline, so choosing before the date is the better move.

Can I still enroll in PAYE or ICR today?

For now, yes, if your loans qualify. Both plans close to new enrollment on July 1, 2026, and the Department’s new regulation bars a borrower who leaves PAYE from re-enrolling. Department guidance elsewhere says PAYE enrollment runs until July 1, 2027, a date the regulation contradicts, so treat July 1, 2026 as the working deadline. A borrower who wants PAYE’s terms should be enrolled before that date.

Will my PAYE or ICR payments keep counting toward PSLF?

Yes. Both plans remain PSLF-qualifying through July 1, 2028, and the qualifying payments you make on them are credit toward your 120 that a later plan change does not take away. A move to IBR or RAP continues the same count, because PSLF credit accumulates across qualifying plans rather than belonging to any one of them.

Should I move to IBR or hold out for RAP?

Run both numbers before you move. IBR is available now and its discretionary-income formula usually beats RAP’s total-income formula for the same earnings, but RAP’s interest waiver and principal match can win for borrowers whose balances keep growing. The one move to avoid is leaving PAYE casually: once you leave, the regulation does not let you back in, and what happens to your unpaid interest depends on which plan you eventually exit.

Does switching plans capitalize my unpaid interest?

It depends on the plan you leave. Exiting PAYE does not add unpaid interest to your principal. Exiting IBR does. RAP sidesteps the question while you are in it by waiving each month’s uncovered interest. For a borrower carrying significant unpaid interest, the order of moves can change what the debt costs, which is a reason to map the whole path before taking the first step.