How Is Income-Based Repayment Calculated For Student Loans?

If you’re trying to figure out your Income-Based Repayment Plan payment, you’re probably not just asking for a formula—you want answers.

• Will this plan actually lower my payments?

• How much does my income or family size matter?

• Should I stick with SAVE or switch to IBR given all the current uncertainty?

We’ve got you covered. Whether you’re comparing IBR to SAVE or just want to know what your monthly payment will look like, let’s cut through the noise.

Here’s a step-by-step breakdown, starting with the exact formula to calculate your IBR payment.

Thinking about leaving the SAVE Plan? Check out our guide to switching from SAVE to IBR.

If you’re trying to calculate your Income-Based Repayment (IBR) amount, you need the formula. Here it is:

Monthly Payment = [(Adjusted Gross Income – 150% of Federal Poverty Guideline) × 10% or 15%] ÷ 12

Here’s how it works:

• 10% Plan: If your loans are from after July 1, 2014, your payment is 10% of your discretionary income.

• 15% Plan: For loans from before July 1, 2014, it’s 15%.

What Each Term Means

• Adjusted Gross Income: Your total income after deductions like retirement savings or HSA contributions. You’ll find it on Line 11 of Form 1040. If you’re married and file jointly, your AGI includes both incomes. Filing separately might exclude your spouse’s income (depending on your plan and state).

• Federal Poverty Guideline: The income threshold for your family size, adjusted annually. The poverty level number changes based on where you live (48 states, Alaska, Hawaii).

• Discretionary Income: This is what’s left after subtracting 150% of the poverty line for your family size from your AGI.

Example Calculation

Let’s say you earn $50,000 annually, and the poverty guideline for your family size is $14,580:

• Discretionary Income: $50,000 – (150% × $14,580) = $28,130

• 10% Plan Payment: ($28,130 × 10%) ÷ 12 = $234.42/month

• 15% Plan Payment: ($28,130 × 15%) ÷ 12 = $351.63/month

Want an easier way? Use our Income-Based Repayment Calculator or see our IBR Chart to quickly estimate your payment based on income and family size.

Follow these steps to figure out your monthly payment under the IBR plan:

Step 1: Find Your Adjusted Gross Income

Grab your most recent federal income tax return. Your AGI is your total annual income for the year minus deductions like retirement contributions or HSA contributions. Look for it on Form 1040, Line 11.

If your income has changed significantly since you filed taxes, use your current income to estimate your AGI instead.

Step 2: Check the Federal Poverty Level

The FPL depends on your family size and where you live. Use the current FPL chart to find the number that applies to you.

Example:

• For a single borrower, the FPL might be $14,580.

• For a family of four, it could be around $30,000.

Related: Does Having a Child Reduce Student Loan Payments?

Step 3: Calculate Your Discretionary Income

Subtract 150% of the FPL for your family size from your AGI. That’s your discretionary income—what the IBR plan uses to calculate your payment.

Example: If your AGI is $50,000 and the FPL for your family size is $14,580: $50,000 – (150% × $14,580) = $28,130 discretionary income

Step 4: Multiply by the Percentage

Take your discretionary income and multiply it by the right percentage:

• 10% for loans after July 1, 2014

• 15% for loans before that date

Then, divide by 12 to get your monthly payment.

Example: ($28,130 × 10%) ÷ 12 = $234.42/month for newer loans.

Step 5: Compare to the Standard Repayment Plan

To qualify for IBR, your calculated payment must be lower than what you’d pay under the 10-year Standard Repayment Plan. This is called a Partial Financial Hardship.

Here’s how it works:

• If your IBR payment is lower than the Standard Plan payment: You qualify for IBR.

• If your IBR payment is the same or higher: You don’t qualify and may need to look at other plans like PAYE or SAVE.

Tip: Not sure how your payments compare? Use our Partial Financial Hardship Calculator to see if you qualify.

Let’s walk through two examples—one for a single borrower and one for a married borrower—to show how IBR payments are calculated.

Single Borrower Example

This borrower earns $50,000 annually, has no dependents, and lives in a state where the Federal Poverty Level (FPL) for a family of 1 is $14,580.

Result: The borrower’s monthly payment is $234.42 under the 10% plan or $351.63 under the 15% plan, depending on their loan type.

Married Borrower Example

This couple has a combined income of $80,000, two children, and lives in a state where the FPL for a family of 4 is $30,000.

Result: The monthly payment is $291.67 under the 10% plan or $437.50 under the 15% plan.

While the formula for IBR is straightforward, other factors can impact how much you actually pay.

Here’s what to watch out for:

Community Property States and Marital Status

If you live in a community property state (e.g., California, Texas), filing taxes separately may still include part of your spouse’s income in your IBR calculation.

Example: If your spouse earns $60,000 and you file separately, half of their income ($30,000) may still count toward your AGI.

Tip: Check your state’s rules before filing separately to understand how they interact with federal repayment plans.

Parent PLUS Loans and Consolidation

Parent PLUS loans don’t qualify for IBR unless they’re consolidated into a Direct Consolidation Loan, and even then, they’re only eligible for the Income-Contingent Repayment (ICR) plan—not IBR or PAYE.

Double Consolidation Loophole: Borrowers can use this strategy to access IBR, but it’s only available until June 30, 2025.

Tip: If you’re considering this option, act fast—final consolidation must be completed by the deadline. See our guide on the double consolidation loophole for details.

Impact of Forbearance and Deferment

Forbearance or deferment can affect your IBR payments in two big ways:

• Interest Accrual: Interest keeps growing during forbearance, and unpaid interest might capitalize when you resume payments.

• Forgiveness Timeline: These periods typically don’t count toward the 20-25 year forgiveness clock.

Tip: If you’re struggling, consider income-driven forbearance instead to keep working toward forgiveness.

Interest Subsidies on Unpaid Balances

How interest accrues under IBR depends on your loan type:

• Subsidized Loans: The government covers unpaid interest for up to three years after you start IBR.

• Unsubsidized Loans: Unpaid interest accrues with no subsidy, which can grow your balance.

• Amortization: IBR payments often don’t fully cover the interest, leading to negative amortization (unpaid interest added to your balance).

Switching Plans and Partial Financial Hardship

If your income increases, you might lose PFH eligibility, which is required for IBR and PAYE. At that point, you may need to switch to a plan like REPAYE or SAVE, which don’t require PFH.

Note: Switching plans can trigger interest capitalization, which increases your loan balance.

Loan Servicer Discretion

Not all loan servicers handle IDR plans consistently, especially for borrowers in community property states or those living abroad.

Living Abroad: If you exclude foreign income on your tax return, your servicer might still ask about your earnings. What matters for IBR, however, is your taxable income—not gross foreign earnings.

Tip: If your servicer misinterprets your situation, escalate it to the U.S. Department of Education. See our guide on the Foreign Earned Income Exclusion for more help.

IBR is just one of several income-driven repayment plans aimed at making federal student loans more manageable. But how does it stack up against plans like PAYE, SAVE (formerly REPAYE), or ICR?

The table below breaks down key differences in eligibility, repayment terms, and features to help you figure out which plan might work best for your situation.

Each IDR plan has its pros and cons. Use our Income-Driven Repayment Calculator or consult a student loan expert to find the best fit for your financial goals.

Once you calculate your IBR payment, you might feel frustrated by how long it’ll take to pay off your loans or how much interest you’re racking up. Refinancing could be an option—but it comes with trade-offs:

What You Lose by Refinancing Federal Loans

• No More Loan Forgiveness: Refinancing your federal loans into private loans eliminates options like Public Service Loan Forgiveness or forgiveness under IDR plans.

• Higher Monthly Payment Amounts: Refinancing often means shorter repayment terms, which can drive up your monthly bill.

• No Federal Protections: Benefits like income-based payments, deferment, and forbearance disappear once you refinance into a private student loan. Private lenders like SoFi, Sallie Mae, and College Ave don’t offer forgiveness programs or student loan payment plans that consider your income or financial situation.

When Refinancing Might Make Sense

• You already have private loans or don’t plan to use forgiveness for your federal loans.

• You can secure a lower interest rate and afford higher monthly payments.

• You’re confident you can pay off your loans faster without relying on federal protections.

Key Question to Ask

What’s more important to you—keeping payments low and qualifying for forgiveness, or reducing your total interest costs over time?

For more help deciding, check out our guide to How to Refinance Federal Student Loans.

For many borrowers, IBR isn’t a first choice—it’s a fallback. With the future of the SAVE Plan is uncertain, you’re likely here trying to answer a simple question: can you afford this payment?

Whether you’re crunching the numbers to see if IBR makes sense or wondering if you even qualify as a higher earner, the stakes feel high.

These decisions don’t have to stay overwhelming.

If you’re ready for clarity and a plan that works for you, book a call with one of our student loan experts.