Income-Based Repayment (IBR) calculates your payment as a percentage of your discretionary income

Discretionary income is your adjusted gross income (AGI) minus 150% of the federal poverty line for your family size and state. The Department of Education takes that number, multiplies it by 10% or 15% depending on which IBR plan you're on, and that becomes your monthly payment. If your income is low enough that discretionary income is zero or negative, your payment is $0—but you still owe the loan.

The calculation happens once a year when you recertify your income. You submit a tax return or income estimate to your loan servicer, they run the math, and your payment changes on your next billing date. If your income drops, your payment drops. If your income rises, your payment rises—but it will never exceed what you would pay on the standard 10-year plan, even if the percentage calculation says it should.

The exact percentage depends on which IBR plan you're enrolled in. Newer borrowers (those who took out their first federal loan on or after July 1, 2014) pay 10% of discretionary income. Older borrowers on the original IBR plan pay 15%. Both plans forgive remaining balance after 20 or 25 years of payments, depending on the plan.

Key Takeaways

  • Your IBR payment is calculated as a percentage of discretionary income, which is your AGI minus 150% of the poverty line for your family size.
  • Newer borrowers pay 10% of discretionary income; older borrowers on the original IBR plan pay 15%.
  • You must recertify your income every year, and your payment adjusts based on what you report.
  • If your discretionary income is zero or negative, your payment is $0, but interest still accrues unless you're on a subsidized loan.
  • Your IBR payment will never exceed what you would pay under the standard 10-year repayment plan.

What counts as discretionary income

Discretionary income starts with your adjusted gross income (AGI) from your most recent tax return. This is the number on line 11 of Form 1040 (or the equivalent on your state return). The Department of Education then subtracts 150% of the federal poverty line for your household size and state of residence.

The poverty line changes every year. For 2024, the federal poverty line for a single person is roughly $14,600, so 150% of that is about $21,900. For a family of four, it's roughly $30,000, so 150% is about $45,000. These numbers vary slightly by state for Alaska and Hawaii. If your AGI is below the poverty threshold for your family size, your discretionary income is zero, and your payment is $0.

If you're married and filing jointly, both incomes count toward AGI. If you're married but filing separately, only your income counts, which can lower your discretionary income—but filing separately has other tax consequences, so check with a tax professional before choosing that route.

How the percentage is applied

Once discretionary income is calculated, the Department of Education multiplies it by either 10% or 15%, depending on your plan. For borrowers who took out their first federal loan on or after July 1, 2014, the rate is 10%. For borrowers on the original IBR plan (those who took out their first loan before that date), the rate is 15%.

The result is your monthly payment. If your discretionary income is $30,000 and you're on the 10% plan, your annual payment obligation is $3,000, which breaks down to $250 per month. If you're on the 15% plan with the same discretionary income, it's $4,500 annually, or $375 per month.

This payment amount is recalculated every year when you recertify. If your income stays the same, your payment stays the same. If your income rises by $10,000, your discretionary income rises by $10,000, and your payment rises by $1,000 annually (or $83 per month on the 10% plan).

The payment cap: you never pay more than the standard plan

Even if the percentage calculation produces a high number, your IBR payment is capped at what you would pay under the standard 10-year repayment plan. The standard plan divides your total loan balance by 120 months and charges you that amount each month (plus interest accrual). If your IBR calculation says you should pay $800 per month, but the standard plan payment is $600, you pay $600.

This cap protects borrowers whose income rises significantly. It means that as your income grows, your IBR payment will eventually hit the standard plan amount and stay there, even if the percentage formula would push it higher. Once you're paying the standard plan amount, you're no longer on income-based repayment in practice—you're paying a fixed amount that will clear the loan in 10 years.

Annual recertification and how changes affect your payment

You must recertify your income every 12 months to stay on IBR. Your servicer will send you a notice asking you to submit proof of income—usually your most recent tax return, a pay stub, or an income estimate if your circumstances have changed. You can recertify online through your servicer's website, by mail, or by phone.

The recertification deadline is typically 30 days from the notice date. If you miss the deadline, your loan may be moved to a different repayment plan (usually standard repayment), and your payment will jump. You can recertify late and request that your loan be moved back to IBR, but your payment will be calculated based on the date you actually recertify, not the date you were supposed to.

When you recertify, report your current year's income if you expect it to be different from last year. If you're unemployed or your income has dropped, report that. The servicer will use whatever income figure you provide to calculate your new payment. If you underreport income, that's fraud; if you overestimate, you'll pay more than necessary, but you can recertify again if circumstances change.

Interest accrual and unpaid interest capitalization

On most IBR plans, interest accrues daily on your loan balance, even if your monthly payment is $0. If your payment doesn't cover the interest that accrues that month, the unpaid interest sits on your account. After you've been on IBR for 20 or 25 years (depending on the plan), any remaining balance is forgiven, but unpaid interest is added to the balance before forgiveness is calculated.

On subsidized federal loans, the government pays the interest while you're in school and during certain deferment periods, but not while you're on IBR. On unsubsidized loans, interest accrues from day one. If your IBR payment is $0 or very low, and you have a large loan balance, unpaid interest can grow significantly over time.

Some borrowers choose to pay more than their IBR payment to cover accrued interest and prevent capitalization. Others accept that interest will capitalize and focus on making the required payment. There's no penalty for paying extra, so if you have the cash, paying down interest is usually the better choice.

How to recertify and what documents you need

Log into your servicer's website and look for "recertify income" or "income-driven repayment recertification." Most servicers allow you to recertify online by uploading a tax return, pay stub, or benefit statement. You'll need to confirm your family size, state of residence, and current income.

If you're recertifying based on a tax return, use your most recent one (usually from the prior year). If you're recertifying based on current income and expect it to be different, you can submit a recent pay stub or a signed statement of income. The servicer will tell you what they accept.

After you submit, the servicer processes the recertification and sends you a new payment amount within 7 to 10 business days. Your new payment takes effect on your next billing date. If you recertify late, the servicer may move you to a different plan temporarily, but you can request reinstatement to IBR once you recertify.

Frequently Asked Questions

What happens if my income is zero?

Your discretionary income is zero, so your IBR payment is $0. You still owe the loan, and interest still accrues (unless it's a subsidized loan). You must continue to recertify every year to keep your payment at $0. If you stop recertifying, your loan will be moved to a different repayment plan and your payment will jump.

Can I use my spouse's income if we're married?

Only if you file taxes jointly. If you file jointly, both incomes count toward AGI. If you file separately, only your income counts. Filing separately can lower your payment but has other tax consequences, so consult a tax professional first.

Does my IBR payment change if I get a raise?

Not until you recertify. Your payment is based on the income you report at recertification. If you get a raise mid-year, your payment stays the same until your next annual recertification. At that point, your new income is used to calculate a new payment.

What if I can't afford my IBR payment?

Contact your servicer and ask about income recertification or a change in family size. If your circumstances have changed since your last recertification, recertifying early can lower your payment. You can also request a temporary forbearance or deferment while you sort out your finances, though interest will continue to accrue.

Will my unpaid interest be forgiven after 20 years?

Yes. After 20 or 25 years of payments on IBR (depending on your plan), any remaining balance, including unpaid interest, is forgiven. However, forgiven debt may be treated as taxable income by the IRS, so you may owe taxes on the forgiven amount.