Which statement best describes an income-driven repayment plan for federal student loans?

• A. Income-driven plans tie monthly payments to income and family size; the grace period is the time after graduation before repayment starts.
• B. Income-driven plans have fixed payments that do not depend on income, with no grace period.
• C. All federal loans use the same repayment term, with repayment starting immediately.
• D. Grace periods are optional and do not apply to most loan types.

Answer: (A)

Income-driven repayment plans base monthly payments on your income and family size, using a percentage of your discretionary income and recalculating each year as your finances change. This means payments aren’t fixed; they can be much smaller than a standard plan and can even be zero if your income is low. A typical feature is a grace period after graduation (about six months) before any payments are due, after which the income-based payment amount applies. This combination—payments tied to earnings and an initial grace period before repayment begins—is what makes income-driven plans distinct from fixed-payment plans and from schedules where all loans start repayment immediately.