Private student loans Try income-driven repayment for the first time

For years, income-driven repayments were a dividing line between federal and private student loans. Federal borrowers could tie monthly payments to their income, but historically private borrowers could not.

That line is starting to blur.

RISLA (Rhode Island Student Loan Authority), a nonprofit student loan provider based in Rhode Island, has introduced an income-based repayment (IBR) option for borrowers who refinance student loans through the organization. The plan borrows heavily from the “old” IBR framework created in 2009, offering payment flexibility during periods of lower income and forgiveness after decades of repayment.

It’s a small but notable shift in a retail lending market that traditionally emphasizes fixed monthly payments and faster payout schedules. As federal student loan policies continue to change, the question is whether other lenders will follow suit and whether borrowers should welcome them if they do.

How RISLA income-based reimbursement works

Under RISLA’s IBR program, borrowers refinancing their student loans can limit their monthly payment to 15% of discretionary income. That payment will never exceed what the borrower would owe under a standard repayment plan, and the minimum payment is $10 per month.

Interest continues to accrue during IBR periods, but there is an important guardrail: unpaid interest is not capitalized (meaning it is not added to the loan balance) until the borrower reaches the end of the IBR repayment period.

Borrowers who remain in the program for 25 years of qualifying payments can have the remaining balance forgiven. Periods of forbearance or forbearance do not count toward that total unless the borrower is actively making IBR payments.

RISLA also says borrowers who enroll in IBR will continue to be eligible for its occupation-based loan forgiveness programs, including Nursing Rewards and Internship Forgiveness. That combination is unusual in the private market, as most other private lenders do not offer forgiveness programs.

Why private lenders are experimenting now

Private lenders have long avoided income-driven repayments because of their uncertainty. Fixed payments make loans easier to price, easier to securitize and easier to explain to investors.

But the student loan market has changed. Rising balances, uneven wage growth, and the normalization of means-tested repayments in the federal system have reshaped borrower expectations. Many borrowers now view payment flexibility as a basic feature and not a luxury.

From a lender’s perspective, IBR can serve as a risk management tool. A borrower who can reduce their payments during a job loss or decline in income may be less likely to default. Lower default rates can offset the costs of longer repayment periods and potential loan forgiveness.

RISLA’s nonprofit status can also make the math easier. The organization does not respond to shareholders in the same way that large for-profit lenders do, leaving more room to prioritize borrower stability over short-term returns.

What does the math look like?

Income-based repayment lowers monthly payments but almost always increases the total amount paid over time. Time is a big factor in student loan repayment.

Consider a simplified example:

• Loan balance: $60,000
• Interest: 6%
• The borrower’s discretionary income: $50,000

Standard repayment (15 years):
A borrower on a 15-year fixed contract would pay approximately $505 per month. Over 15 years, total payments would be approximately $91,000, with the loan paid off in full. Shorter repayment plans pay back even less because less interest accrues.

Income-related repayment (25 years):
At 15% of discretionary income, the monthly payment would initially be about $343 per month, but payments could increase over time (essentially the lender is betting on it). Over 25 years, the borrower could easily pay a total of $100,000, depending on income growth, before the remaining balance is forgiven.

It’s also important to realize that forgiven balances are taxable – and would be subject to the student loan tax bomb.

The borrower does benefit from flexibility and protection against unaffordable payments. The lender benefits from longer interest collection and a lower default risk. The trade-off is time.

What this means for borrowers

For borrowers with volatile incomes (early-career professionals, gig workers, or those holding lower-paying public sector jobs), private IBR could reduce financial pressure without forcing them back into the federal system.

However, those with volatile incomes may find it difficult to get approved for a refinance into an IBR program. There are multiple student loan lenders, and they all have different underwriting criteria. if there is a refund risk, they may not offer IBR after all.

Refinancing into a private student loan with this IBR plan also means giving up federal protections like Public Service Loan Forgiveness and any future federally mandated payment holidays.

It’s too early to call this a trend, but RISLA’s moves will be closely watched. If default rates fall and borrower satisfaction rises, other lenders may test similar options, possibly with stricter eligibility rules or higher interest rates to compensate for the risk.

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