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    Calculates locally in your browser · income-driven repayment and PSLF
    Student loans / repayment

    Income-driven repayment and PSLF

    Every income-driven plan is the same shape: a share of income above a multiple of the poverty guideline, capped at what the standard plan would charge. What differs is the share, the multiple and the horizon — and the horizon decides the answer, because a payment below the interest builds a larger balance that is forgiven later, and taxed unless it is PSLF.

    PlanPAYEAmortisationNegativeForgivenesstaxed at 22%
    Monthly payment
    $179
    standard plan would be $444
    Forgiven at the end
    $49,530
    20 years
    Total cost
    $53,947
    includes $10,897 of tax
    Discretionary income
    $21,525
    income above the protected allowance
    The plan, and what it costs
    A lower payment is not a lower cost: the balance that survives to forgiveness is taxed unless it is PSLF.
    $179/mo
    The plan, and what it costs
    MeasureValueNote
    Poverty guideline$15,650household of 1
    Protected income$23,475150% of the guideline
    Discretionary income$21,525the part the payment is charged on
    Monthly payment$179income-driven
    Standard 10-year payment$444for reference
    Payments made0of 240
    Total paid$43,050before any tax on forgiveness
    Forgiven$49,530taxable as income
    Tax on forgiveness$10,89722% marginal rate
    Total cost$53,947paid plus tax

    The payment does not cover the monthly interest, so the balance grows and the forgiveness at the end is larger — and taxed.

    Inspect the model
    Choose a quick result view, a scaled comparison, or the complete diagnostic set.
    Payment against income
    Linear in income until it hits the standard payment, then flat — the cap is what makes a high earner indifferent to the plan.
    Payment against income0.00099.47198.95298.42397.90497.37$20k$20k$30k$30k$40k$40k$50k$50k$60k$60k$70k$70k$80k$80k$90k$90k$100k$100k$110k$110k$120k$120k$130k$130k$140k$140k$150k$150k$160k$160kMonthly payment
    Paid against forgiven
    The longer the horizon and the lower the payment, the more of the debt is written off — and the bigger the tax bill.
    Paid against forgiven0.0001.169e+42.338e+43.507e+44.676e+45.844e+4Total paidTotal paidForgivenForgivenTax on forgivenessTax on forgivenessDollars
    Canonical equations
    The exact relationships implemented by this engine.

    (share × (AGI − multiple × FPL)) / 12 · Capped at the standard payment where the plan allows.

    balance at year n · n is 20 or 25 depending on the plan.

    forgiven × t · Zero under PSLF.

    Σ payments + tax · The number to compare across plans.

    finance methodology

    A clear path from inputs to results.

    Every income-driven plan is the same shape: a share of income above a multiple of the poverty guideline, capped at what the standard plan would charge. What differs is the share, the multiple and the horizon — and the horizon decides the answer, because a payment below the interest builds a larger balance that is forgiven later and taxed unless it is PSLF.

    Step-by-step methodWorked exampleAssumptions explained

    How to use

    1. Enter the balance, rate and adjusted gross income.
    2. Set the household size, which sets the protected allowance.
    3. Choose the plan and say whether you are pursuing PSLF.
    4. Read the payment, the forgiven balance and the total cost including tax.

    The formula

    M=s (AGI−m FPL)12M = \frac{s\,(AGI - m\,FPL)}{12}

    Reference: 34 CFR 685.209 (PAYE, ICR, SAVE) and 685.221 (IBR), with the 2025 HHS poverty guidelines.

    Worked example

    $40,000 at 6% on $45,000 of income, PAYE

    Inputs
    • Balance $40,000 at 6%.
    • AGI $45,000, household of one.
    • PAYE: 10% of income above 150% of the guideline, 20 years.
    Calculation path
    1. 1

      The 2025 guideline for one person is $15,650, so the protected allowance is $23,475.

    2. 2

      Discretionary income is $45,000 − $23,475 = $21,525.

    3. 3

      The payment is 10% of that, divided by twelve: $179.38 a month.

    4. 4

      Interest at 6% is $200 a month, so the payment does not cover it — the balance grows.

    5. 5

      After 240 payments the balance is about $49,500 rather than $40,000.

    6. 6

      That balance is forgiven and taxed at 22%, adding roughly $10,900 to the cost.

    Result

    $179 a month · balance grows to $49,500 · $10,900 of tax on forgiveness.

    Interpreting the result

    Negative amortisation is the feature and the trap. A payment below the interest keeps the loan affordable and builds a larger forgiven balance, which is fine if the forgiveness is tax-free under PSLF and expensive if it is not. The total-cost comparison across plans is the only way to see that.

    Assumptions & limitations

    • Income is held constant over the repayment period.
    • The poverty guideline is the 2025 figure for the 48 contiguous states.
    • PAYE and the 2014 IBR cap the payment at the ten-year standard amount.
    • Forgiven balances outside PSLF are taxed at the stated marginal rate in the year of forgiveness.

    Frequently asked questions

    Is SAVE available?

    The plan is modelled as enacted, but it has been enjoined since 2024 and borrowers were placed in forbearance. Treat its numbers as the statutory design rather than a current offer.

    Is forgiven debt really taxable?

    Outside PSLF, yes — it is cancellation-of-debt income. Several states also tax it, and the federal exclusion for death or insolvency rarely applies.

    Should I pay more than the minimum?

    Only if you are not pursuing forgiveness. If you are, every extra dollar reduces the amount forgiven and gains nothing.

    Why does my balance grow?

    Because the payment is a share of income, not a share of the balance. When it is below the monthly interest the shortfall is capitalised, and the forgiven amount at the end is larger than the original loan.

    What counts for PSLF?

    120 qualifying monthly payments while working full-time for a qualifying employer, on a qualifying repayment plan. Payments need not be consecutive.

    Methodology last reviewed 2026-10-22. Results are informational and not financial or engineering advice — see our disclaimer.