The Magic of "Discretionary Income"
The government doesn't think you should spend your last dollar on loans. They define a "protected" amount of money you need for survival. You only pay a percentage of what you earn above that line.
Old vs. New (SAVE) Plan
Old Plans (IBR/PAYE)
Protected: 150% of Poverty Line.
Payment: 10% of
discretionary income.
SAVE Plan (New)
Protected: 225% of Poverty Line.
Payment: 5-10% of
discretionary income.
Alex earns $32,000/year and is single.
The Math: The 2024 Poverty Guideline is ~$15,060.
225% of that is
~$33,885.
Since Alex earns less than the protected amount ($32k < $33.8k),
his "Discretionary Income" is $0.
Result: His monthly payment is
$0, but it still counts toward forgiveness, and interest does
not grow.
IDR FAQ
Lower your AGI. Contributions to a 401k or HSA reduce your Adjusted Gross Income, which directly reduces your student loan payment on IDR plans.
Maybe. Filing separately excludes their income from your payment calculation, which can save thousands. However, you lose tax credits. You must run the math both ways to see if the loan savings > tax penalty.