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Paying off Student Loans: Income-Driven Repayment Plan Calculator

Student loans can be a huge burden, but these income-driven repayment plans can help ease some of this burden.

Justin Cupler

Contributing Writer at Tally

April 5, 2022

Student loans are necessary for many people to go to college, which has led to troubling student debt issues. Fortunately, the Department of Education has income-driven repayment plans to help struggling borrowers lower their monthly payments to fit their income better.

To determine how much you might pay on one of these repayment plans, you need an income-driven repayment plan calculator, and we have the formula for each repayment option below.

Income-driven repayment plan calculator

There are four income-driven repayment plans offered on federal student loans: 

  • Revised Pay As You Earn Repayment Plan (REPAYE Plan) 

  • Pay As You Earn Repayment Plan (PAYE Plan)

  • Income-Based Repayment Plan (IBR Plan)

  • Income-Contingent Repayment Plan (ICR Plan)

Below, we’ll review the specifics of each student loan repayment plan and how each one is calculated.

All the income-driven repayment plans are based on your discretionary income, which the federal government defines as, “the difference between your annual income and 150 percent of the poverty guideline for your family size and state of residence.”

Revised Pay As You Earn Repayment Plan (REPAYE Plan)

The REPAYE Plan works with any Direct Subsidized Loan, Direct Unsubsidized Loan, Direct PLUS Loans to graduate and professional students and Direct Consolidation Loans that didn’t repay any PLUS loans made to parents.

It’s also compatible with consolidated Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, FFEL Plus Loans made to graduate or professional students, FFEL Consolidated Loans that didn’t repay any PLUS loans made to parents and Federal Perkins Loans.

Under the REPAYE plan, your monthly payment will be roughly 10% of your discretionary income.

REPAYE has a maximum repayment term of 20 years for loans taken for undergraduate study and 25 years for loans taken for graduate or professional studies. At the end of that term, any remaining loan balance is forgiven.

To calculate your monthly payment on the REPAYE plan, you must first multiply the poverty guideline for your family size in your state by 1.5. Then, subtract that result from your adjusted gross income (AGI) — your annual income minus adjustments like student loan interest, alimony payments or retirement account contributions — to get your discretionary income. Finally, multiply your discretionary income by 0.10, then divide that number by 12 to get your monthly REPAYE Plan payment.

If you are single with no children and live in one of the contiguous 48 states or Washington, D.C., the poverty guideline is $13,590, and 150% of that would be $20,385. Assume your AGI is $25,000. Subtract $20,385 from $25,000 to get a discretionary income of $4,615. Multiply your discretionary income by 0.10 to get $461.50. Divide that result by 12 to get your REPAYE monthly payment amount of $38.46.

Pay As You Earn Repayment Plan (PAYE Plan)

The PAYE Plan is compatible with any FFEL Program Loan taken on or after October 1, 2007 and any Direct Loan taken on or after October 1, 2011.

Like the REPAYE Plan, the PAYE Plan’s monthly payment will generally be 10% of your discretionary income; however, you will be ineligible if your PAYE Plan monthly payment exceeds the monthly payment on the standard 10-year payment plan.

To calculate the PAYE Plan monthly payment, you’d use the same formula as the REPAYE Plan.

The federal government will issue loan forgiveness for any remaining loan balance after 20 years of payments on the PAYE Plan.

Income-Based Repayment (IBR) Plan

The IBR Plan is compatible with all federal student loan types, except those issued to parents. The only other requirement is that the monthly payment must be lower than the 10-year standard repayment plan payment.

Under the IBR Plan, your payment will be about 10% of your discretionary income for new borrowers on or after July 1, 2014. If you took out a federal student loan before July 1, 2014, the payment will be 15% of your discretionary income.

After 20 years on the IBR plan, new borrowers after July 1, 2014 will have their loan balances forgiven. Borrowers with loans before July 1, 2014 will have a 25-year repayment plan before the federal government forgives their loans.

If you were a new borrower on or after July 1, 2014, the IBR Plan calculation is the same as the REPAYE Plan.

For those who had federal student loans before July 1, 2014, you must first multiply the poverty guideline in your state and for your family size by 1.5. Then, subtract that result from your AGI to get your discretionary income. Finally, multiply your discretionary income by 0.15, then divide that number by 12 to get your monthly REPAYE Plan payment.

Using the same numbers from the example above, your IBR monthly student loan payment amount would be $57.68 ($4,615 x 0.15 = $692.25 and $692.25 / 12 = $57.69).

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Income-Contingent Repayment Plan (ICR Plan)

The ICR Plan is compatible with all federal student loans, including Parent PLUS Loans issued to parents. The ICR payment will be the lesser of 20% of your discretionary income or a fixed payment based on a 12-year repayment plan. After 25 years on the ICR Plan, the federal government will forgive any remaining balance.

To calculate your maximum ICR payment, you must first multiply the poverty guideline in your state and for your family size by 1.5. Then, subtract that result from your AGI to get your discretionary income. Finally, multiply your discretionary income by 0.20, then divide that number by 12 to get your maximum monthly ICR Plan payment.

Using the same numbers from the example above, your maximum ICR payment would be $76.92 per month ($4,615 x 0.20 = $923 and $923 / 12 = $76.92).

Keep in mind, your ICR Plan payment could be lower if the 12-month fixed payment plan ends up with a lower monthly payment. You would need to speak with your loan servicer to get this payment amount.

Your payments may change

You must recertify your income-driven payment plan yearly with your loan servicer. It will recalculate your payment and eligibility based on any new information. This means your payment amount can change if your income or family situation changes.

Also, if your family or income situation changes within the year, you can file an update to have this information changed at any time. For example, if you lost your job or got married, you could have your payments adjusted to meet your lowered income or increased family size.

The Public Service Loan Forgiveness (PSLF) exception

If you have an income-driven repayment plan and are also working toward PSLF — PSLF is for those working full time at a federal, state, local or tribal government agency — the Department of Education will forgive the loans per the PSLF program. This means you will earn loan forgiveness with 120 qualifying payments — 10 years — instead of the 20- or 25-year repayment period for the income-driven plans.

Your forgiven loan amount may be taxable income

If you reach the end of your income-driven payment plan and have a student loan balance remaining, the federal government will forgive it. Keep in mind that the Internal Revenue Service (IRS) may tax you on the amount of student loan forgiveness you received when you file your income tax return for the year the government forgave the loan.

Streamline your finances with a federal repayment program

Student loan debt can become overbearing, especially for a new graduate trying to launch a career. With these four income-driven repayment plans, you can lower your monthly payment and maybe even have part of the federal loan forgiven at the end of the term. With the income-driven payment plan calculator, you’ll have an estimate of what you’ll pay.

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