Punchline
In 2020, each increase in your family size will decrease your payment by exactly $55.25 per month if your payment plan is either REPAYE or PAYE and $82.88 if on IBR, assuming no change to your AGI.
The Math
Annual payments for PAYE and REPAYE are calculated based on 10% of discretionary income. Discretionary income is defined as your adjusted gross income (AGI) minus 150% of the federal poverty level for your family size. The 2020 poverty level increases by exactly $4420 for each additional family member.
Let’s take an AGI of $100,000 and a family size of 2 as an example. The poverty level for a family of 2 is $16,910. So we take 150% of this number to get $25,365. Discretionary income is $100,000 - $25,365 = $74,635. Annual PAYE and REPAYE payments are 10% of this number which gets us $7463.50. That’s $621.96 a month.
Now suppose this family has a baby. Family size is now 3. The poverty level increases by $4420. Thus, discretionary income goes down by 150% of this amount, or $6630. And since payments are 10% of discretionary income, annual payments go down proportionally by $660 per year, or $55.25 per month.
Doing similar math for IBR (where payments are based on 15% rather than 10% of discretionary income), an increase in family size will reduce payments by $82.88 per month
Exceptions
Payments cannot be less than zero, so any decrease in payment is obviously limited by your total payment if it’s already very low. Also, remember that PAYE and IBR have a maximum payment based on your loan details, above which neither AGI nor family size come into play directly. If your income places you far enough above the maximum payment, increasing your family size will not affect your payment amount.
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