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An unrealized gain or loss is the change in market value of an asset from its purchase price, before it is sold.

While it only takes a moment to swipe or tap a debit card when making a purchase, debit card refunds are not as fast: They typically take between one and 10 business days or even longer.

Debit card refunds can be a common occurrence: Perhaps you used your card to buy laundry detergent but you bought the wrong variety. Or maybe you purchased an item online that arrived damaged.

There are a number of different factors that impact how debit card refunds work. Understanding the debit card refund process can help you know what to expect, and most importantly, when to expect the money to go back into your bank account.

Understanding the Debit Card Refund Process

One important debit card fact is that refunds don’t usually go through instantly, despite how quick purchase transactions can be with these cards. If you expect the money to be credited to your account immediately (as it could be with a cash refund), you may be disappointed. And depending on how you are managing your cash flow, you could risk overdraft fees if you expect the funds to quickly land back in your bank account.

The most important thing to understand is that your financial institution (whether you do online banking or the traditional kind) cannot issue an immediate refund to your account. Instead, they must wait for the merchant to initiate the refund. Generally, once you request a refund, the merchant will approve it, and then they will alert their bank to issue a refund to your bank.

Each one of these steps can take a few business days, which is why the overall debit card refund process can take up to 10 business days or longer.

Factors Affecting Refund Processing Time

There are several factors that can affect how long it takes for a refund on a debit card to arrive at your checking account.

•  Merchant delays: Depending on how you request your refund and which merchant is processing the refund, it may take a couple of business days for your refund to even be initiated. There may also be delays in the processing between the merchant’s bank and your bank.

•  Debit card processing: Your debit card processing network (such as Visa or Mastercard) will have its own schedule and system for refunds. This could potentially slow down your refund. There also could be a slowdown with the merchant’s network.

•  Incorrect information: One of the biggest factors that can delay your debit card refund is if you provide incorrect information to the merchant. Make sure that your refund request has your proper name and bank account details to facilitate a prompt refund.

•  Technical difficulties: There could be technical delays or difficulties. For instance, there might be an abnormally large number of refund requests at a given time. This can increase debit card refund processing time.

•  Payment authorization: It’s important to understand that when you make a purchase, it may take a few business days for the merchant to actually receive your money. If you make a refund request before the merchant has obtained your money, your refund will likely have to wait until after that initial charge has been posted.

•  Fraud checks: A refund request for an unusually large charge may be delayed while the bank checks to make sure that both the charge and the refund request are valid and not a kind of bank fraud. This process can also affect international debit card refund requests, which may take a bit longer than domestic refunds.

Understanding these forces can help explain how long a debit card refund takes to be completed.

Recommended: APY (Annual Percentage Yield) Calculator

Tips to Expedite Your Debit Card Refund

Here are a few ways you may be able to speed up a debit card refund:

•  Be accurate. One of the most important things that you can do to expedite your debit card refund is to provide accurate information to the merchant when you request the refund. This may include your name, address, contact information as well as your bank account routing and account information. If you provide incorrect information, that can delay your refund or even cause the merchant to not be able to process your refund.

•  Follow up. If several business days have passed and you have not received an expected refund, a good next step can be to check in with the merchant again and request information on where the transaction stands. You may be able to track the status of your refund request online, or you may have to call the merchant directly.

•  Check with your bank. If the merchant says that your refund has been processed but you still haven’t seen it post to your account, contact your financial institution to see if they can track the status of your refund. They may help move the transaction forward; they might contact the payment processor for details on the debit card refund’s status.

By following this sequence of steps, you may be able to speed up a debit card refund.

What to Do If Your Refund Is Delayed

As noted above, if your refund is delayed, the first step is to reach out to the merchant. They may be able to verify your refund information and update your refund status. You can also reach out to your bank to see if they can track your debit card refund.

It’s also good to understand that international debit card refunds can take longer still than domestic, due to cross-border processing times.

Though delays in debit card refunds can undoubtedly be frustrating, know that sometimes security measures are the root of the slowdown. The silver lining is that your personal finances are being protected as your refund makes its way back to you.

Recommended: 7 Tips to Managing Your Money Better

The Takeaway

The time frame for how long a debit card refund takes is usually anywhere from one to 10 business days, depending on a number of factors. These include the amount of time it takes for the merchant to process the refund and for both your bank and the merchant’s bank to move the money. There can also be delays due to technical issues and a high volume of transactions. If it’s been several business days and you haven’t seen an expected refund, first check with the merchant. If you don’t get a satisfactory response, check with your bank to see if they can track and expedite your debit card refund.

If you’re looking for a bank account with a debit card and loads of other great features, see what SoFi can offer.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Do credit card refunds process faster than debit card refunds?

No, actually credit card refunds usually take longer to process than returns with cash or debit cards. They typically take between five and 14 business days, versus one to 10 for a debit card refund. However, purchases that you make with a credit card may afford you more protections (such as protection against unauthorized charges) than those made with debit cards.

Can I track my debit card refund status?

It can sometimes be difficult to accurately track the status of your debit card refund. You may be able to track your refund on the merchant’s website (if they provide that service). However, that may only show when the merchant authorized the return. Another option would be to look at your online banking account or talk to your bank’s customer service department. If your debit card refund is delayed, you might reach out to the merchant and then your bank for updates.

How do international refunds differ from domestic ones?

International debit card refunds work in a similar fashion to domestic debit card refunds and may take the same amount of time: up to 10 business days. However, they may take considerably longer; international banking transactions may have to route through multiple processing networks. Additionally, some banks may flag international debit card refunds as potentially fraudulent, leading to further delays as they ascertain if they are valid.

Photo credit: iStock/Hispanolistic

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOBNK-Q324-082

A student checking account is a bank account that is specially designed for students in their teens and early 20s. This type of account typically offers the same tools as a regular checking account, like a debit card and checks, but may have lower fees and minimal balance requirements to make banking more accessible for young adults. Some student bank accounts may also offer extra perks like sign-on bonuses and financial education tools tailored to students.

But student bank accounts also come with some limitations, such as low or no interest and certain eligibility requirements, so it’s important to weigh the pros and cons before choosing this type of account. Here are key things to know about student checking accounts, including their requirements and costs, and how they compare to traditional checking accounts.

What Are Student Checking Accounts?

A student checking account is a type of bank account tailored specifically for students, typically those in college. These accounts function similarly to traditional checking accounts but come with benefits tailored to young adults who may be new to banking.

Like a standard checking account, a student checking account allows you to easily deposit, withdraw, and transfer funds. These accounts typically offer a debit card, checks, mobile banking, and ATM access to facilitate shopping and bill paying. Some checking accounts may also pay a small amount of interest (especially if your account is with an online bank).

Unlike traditional checking accounts, however, student bank accounts are generally limited to students and usually require proof of enrollment in school. They also tend to charge lower and fewer fees compared to traditional accounts, along with lower balance requirements. In addition, some student accounts offer additional benefits, such as rewards programs and overdraft forgiveness.

Student Checking Account Features

Here’s a closer look at the features that a typical student checking account may offer:

•  Low (or no) minimum balance requirements: Typically, students are not required to maintain a high balance in order to avoid monthly fees or keep the account open.

•  Free ATM access: Many banks provide fee-free access to a large network of ATMs, making it easy to access funds whether you’re on campus or home for the summer.

•  Overdraft protection: You may have the option to link your checking account to a savings account or receive alerts to prevent overdrafts. Some student accounts also forgive overdrafts, which means you won’t be hit with a fee if you accidentally overdraft your account.

•  Mobile and online banking: Once you set up your account, you can typically check your balance, make payments, and transfer funds on the go via an app or online platform.

•  Debit card access: Debit cards are linked to your checking account and allow you to make purchases (both online and in-store), as well as withdraw cash at ATMs.

•  Direct deposit: A student checking account will typically allow you to have your paychecks or financial aid directly deposited into the account, which can give you faster access to your funds.

•  Rewards programs: Many student checking accounts offer cash back on purchases made with your debit card, which can help you save money on everday expenses.

•  Financial education resources: A student account often comes with tools to help students budget, save, and track expenses.

Recommended: Savings Account Calculator

Who’s Eligible to Open a Student Checking Account?

Student checking account eligibility requirements can vary among financial institutions. In general, these accounts are limited to certain age groups, which can be anywhere from age 13 to 25. If you’re below the age at which you can open a bank account, which is age 18 in most states, you will likely need to open a joint student account with a parent, guardian, or another adult.

To open a student bank account, you must typically also be a current student. This generally means full-time enrollment but some banks may allow part-time students to open a student bank account. Either way, you will likely need to provide proof of enrollment to be approved for a student account.

When you graduate school and/or age out of a student checking account, the financial institution may automatically convert your student account into a standard checking account.

Recommended: How to Deposit a Check

Pros and Cons of Student Checking Accounts

Student checking accounts come with numerous benefits, but also a few downsides. Here’s a look at how the pros and cons stack up.

Advantages of Student Checking Accounts

•  Waived or discounted monthly fees: Banks will often waive or reduce monthly maintenance fees for student checking accounts.

•  Low or no initial deposit: You may be able to open a student checking account with a small, or no, initial deposit.

•  Reduced minimum balance requirements. You may avoid being charged a fee or having your account closed due to not having a certain amount of money in your account.

•  Lower (or no) penalties for overdrafts: A student account will often charge reduced penalties for overdrafts compared to traditional accounts. Some student accounts may not charge any overdraft fees.

•  Special perks: Some accounts come with exclusive benefits like cash back rewards, student sign-up bonuses, and educational resources tailored for students.

Disadvantages of a Student Bank Account

•  Limited availability: Only students can apply, and eligibility ends after graduation or when you turn a certain age.

•  May need to visit a branch: While some banks allow you to apply for a student account online, many require you to come into a branch and apply in person.

•  Low or no interest on deposits. As with a traditional checking account, student checking accounts generally pay little to no interest on any money sitting in the account.

•  You may need a cosigner: Some banks only allow students (especially those under age 18) to open a joint account with a parent or a guardian. This means you may need an adult to cosign your student account when you open it.

•  Potential conversion fees: Once you’re no longer a student, or turn a certain age (such as 25), the account may be converted into a regular checking account and start charging monthly fees.

How to Choose Between Different Student Checking Accounts

Choosing the right student checking account involves understanding your needs and finding the right match. Here are some considerations:

•  Can you open the account on your own, or will you need a joint account holder due to your age?

•  What are the requirements in terms of your school enrollment status?

•  What are the monthly fees, if any?

•  Will your money on deposit earn any interest? If so, how much?

•  How much is the minimum initial deposit when opening the account?

•  Must you maintain a certain balance in the checking account to avoid fees?

•  What happens if you overdraft your account?

•  Is there a sign-up bonus or are any rewards (such as cash back for using your debit card)?

•  What kinds of financial education programs are available in conjunction with the student checking account?

•  Does the bank have branches and/or ATMs in convenient locations?

•  Will your account automatically become a standard checking account when you finish your education or age out of the student checking account?

How to Open a Student Bank Account

Once you’ve figured out which bank is your choice for a student account, you’ll typically follow these steps to open a checking account:

•  Find out if you can sign up online or if you need to apply in person at a branch, and whether or not you’ll need an adult cosigner.

•  Provide your personal information (such as your home address, phone number, and Social Security number) and school information (e.g., school name, address, and phone number).

•  Provide a driver’s license, a student ID, or another official photo ID.

•  Supply proof of enrollment in a school (if required). This might be a school report card, transcript, or acceptance letter, or your student ID.

•  Have your cosigner provide their information (if required).

•  Make an initial deposit (if required). Some banks require an initial deposit of $10 or $25; others may allow you to open your account without any cash at first.

Once your application is reviewed and approved, you may be able to start using your account right away. However, it can take up to 10 days or longer for your debit card and paper checks to arrive in the mail. Once that happens, you’re all set to start fully using your student banking account — congrats!

The Takeaway

A student checking account can be a great tool for a young person learning how to manage their finances. With features like low fees, mobile banking, and overdraft forgiveness, these accounts can provide the flexibility and convenience students need. However, it’s important to shop around and compare different options, understand the terms, and prepare for the transition to a regular checking account after graduation.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Do student checking accounts charge monthly fees?

Many student checking accounts do not charge monthly fees. Banks will often waive or reduce maintenance fees as a benefit to students, helping them manage their finances without extra costs. Some banks will also waive or discount other fees, such as overdraft and ATMs fees, for students. However, it’s important to read the account terms carefully to understand any potential charges before you open a student checking account.

Can I open a student checking account if I’m an international student?

International students are often eligible to open a student checking account in the U.S. Requirements vary by bank but you may need to provide both a foreign and U.S. address, two forms of ID (such as a passport, U.S. student ID, and/or foreign driver’s license), and a foreign tax identification number (FTIN). It’s a good idea to check with specific banks to determine their policies for international students.

What happens to a student checking account after you graduate?

After your scheduled graduation date, your student checking account will likely convert into standard checking accounts, which may include monthly maintenance fees and different account terms. Some banks offer a grace period of a few months post-graduation before making the transition. To avoid unexpected fees, it’s important to check with your bank about post-graduation policies and consider switching to an account that offers benefits that are better suited to your financial situation.

photo credit: iStock/Iryna Melnyk
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOBNK-Q125-007

Knowing what your discretionary income is (and how discretionary income is calculated for student loans) can help you make decisions about how to best repay your federal loans. That’s because the federal government typically uses discretionary income, which is any adjusted gross income (AGI) you have above a certain percentage of the federal poverty guideline, to determine your monthly payments for income-driven repayment (IDR) plans.

However, because of recent legislation, the options for income-driven plans — and the way monthly payments will be calculated — will be changing. For example, the new Repayment Assistance Plan (RAP) starting in July 2026 won’t use discretionary income to calculate payments. It instead looks at AGI, which could result in higher payments for some borrowers.

Here, we’ll discuss different IDR plans and the ins and outs of discretionary income, as well as upcoming changes to student loan repayment options, so you can figure out a repayment strategy that works for you and your budget.

What Is Discretionary Income?

The Department of Education (Ed Dept) calculates discretionary income as your adjusted gross income (AGI) in excess of a protected amount defined by a federal IDR plan.

Discretionary income under the Income-Based Repayment (IBR) Plan, for example, is any AGI you have above 150% of the federal poverty guideline appropriate to your family size. If you don’t qualify for a $0 monthly payment on the IBR Plan, your monthly payment is set to 10% or 15% of your discretionary income, depending on when you borrowed your loans.

Discretionary income as defined by the Ed Dept is different from disposable income, which is the amount of money you have available to spend or save after your income taxes have been deducted.

How Is Discretionary Income Calculated?

This is how federal student loan servicers may currently calculate your discretionary income on an income-based student loan repayment plan:

•   Discretionary income under IBR is generally calculated by subtracting 150% of the federal poverty guideline from your AGI.

•   Discretionary income under the Income-Contingent Repayment (ICR) Plan is generally calculated by subtracting 100% of the federal poverty guideline from your AGI.

If you’re filing jointly or you have dependents, that will impact your discretionary income calculations. For married couples filing together, your combined AGI is used when calculating discretionary income. Under an income-driven plan, filing with a spouse can drive up your income-driven monthly payments because of your combined AGI.

If you file separately, your student loan payments will be based on your income alone. However, you may lose some tax benefits, so you’ll have to weigh the pros and cons of this approach to determine which makes more sense for your finances.

What Income-Driven Repayment Plan Are You Eligible For?

There are now three federal IDR plans that have different eligibility criteria and terms. (There are two others that are no longer accepting new enrollments.) These income-driven repayment plans can reduce monthly payments for people with incomes below a certain threshold.

It should be noted that federal IDR plans don’t apply to private student loans. They’re only an option for federal student loans.

Income-Driven Repayment Plans for Federal Student Loans

The Ed Dept offers the following IDR options for eligible federal student loan borrowers:

•   Income-Based Repayment (IBR) Plan

•   Pay As You Earn (PAYE) Plan

•   Income-Contingent Repayment (ICR) Plan

All current IDR plans generally use discretionary income to determine monthly payments. If there is a change in a borrower’s income or family size, their monthly payment could increase or decrease, depending on the change. Borrowers enrolled in an IDR plan are typically required to recertify their income and family size each year.

For the IBR and PAYE plans, eligibility is determined based on income and family size. As a general rule, to qualify, borrowers must not pay more under IBR or PAYE than they would under the 10-year Standard Repayment Plan. There’s no income requirement for the ICR plan.

Due to the recent legislation, borrowers who consolidated their Parent PLUS Loans into Direct Consolidation Loans are newly eligible for IBR if they enrolled in the ICR plan immediately.

Also because of the legislation, the PAYE and ICR plans will be eliminated in the coming years. For borrowers taking out their first loans on or after July 1, 2026, there will be only one income-driven plan: the Repayment Assistance Program. RAP will set borrowers’ payments at 1% to 10% of their AGI, rather than using discretionary income.

Pros and Cons of Income-Driven Repayment Plans

IDR plans come with trade-offs. While they can lower your monthly payment and help free up your cash flow now, they may extend the life of your loan. The standard student loan repayment plan is based on a 10-year repayment timeline. Current income-driven repayment plans can extend your payment timeline to up to 25 years. And the RAP plan to be introduced in 2026 extends the payment timeline to 30 years.

This means you’ll be paying off the loan longer and possibly paying more in interest over time. If you stay on the IBR plan, the government might forgive any remaining balance after 20 or 25 years of payments. On RAP, the amount may be forgiven after 30 years. But the amount that is forgiven on these plans may be taxed as income.

Navigating the changes to IDR plans can be complicated. PAYE and ICR are due to close by July 1, 2028, so you may have to switch to IBR or the new RAP plan in the next few years. And as noted above, for borrowers who take out loans after July 1, 2026, RAP will be the only income-driven option.

How to Apply for an IDR Plan

To apply for an IDR plan, you can go to StudentAid.gov and log into your account using your Federal Student Aid (FSA) ID. The online application is estimated to take no more than 10 minutes to complete. (If you prefer, you can download a paper application to fill out and then send it to your loan servicer.)

To fill out the application, you’ll need to supply your address, email address, and phone number, as well as information about your family size. You will also need to provide your most recent income tax return (a tool on the site can link your tax information to the application).

Once you complete the application you will see which IDR plans you qualify for. You can select one and then sign the form and submit it. Your loan servicer should send you an email or letter confirming receipt of the application. The servicer will notify you when your application has been processed.

How Does Discretionary Income Affect Student Loan Payments?

Income-driven repayment plans currently use your discretionary income to dictate the amount you’re required to repay each month. In the case of borrowers enrolled in the IBR Plan, payments are set at 10% of discretionary income for loans borrowed after July 1, 2014, and 15% for loans borrowed before that date. On the PAYE plan, payments are set at 10% of discretionary income. On ICR, payments are 20% of discretionary income.

Examples of Monthly Payment Calculations

To calculate your monthly payments on an IDR plan, you’ll need your adjusted gross income (plus your spouse’s if you file a joint return) and your family size, which includes the number of dependents you have, such as your children.

Next, find the federal poverty guideline for your family size and state, and multiply that number by 150%. Subtract this amount from your AGI to get your discretionary income. Your payment on IBR will be 10% of that amount.

Here’s an example:

Let’s say your AGI (plus your spouse’s) is $100,000.

Your family size is 3 (you, your spouse, and one child).

The federal poverty guideline for you is: $26,650.

Using that information, the calculation would look like this:

$26,650 x 1.50 (150%) = $39,975

$100,000 – $39,975 = $60,025

$60,025 x 0.10 (10%) = $600.25

Your payments on the IBR plan would be $600.25 per month.

To get an official payment amount, you can use the Federal Student Aid Loan Simulator to determine your payments.

Annual Recertification Requirements

IDR certification is typically required annually, and you’ll need to recertify your income and family size. This is mandatory even if there has been no change to your situation or income. If you fail to recertify, there may be negative consequences, such as higher monthly payments or even loss of eligibility for IBR.

You’ll be given a recertification deadline, and you’ll need to recertify by that date. As part of the process, you’ll include your family size as well as your most recent federal income tax return. You can recertify online.

If you gave the Ed Dept permission to access your federal tax information when you first applied for IDR, your yearly certification will be automatic. The Ed Dept will notify you about any change to your monthly payment amount.

How Else Can Borrowers Lower Their Student Loan Payment?

Besides IDR, there are other strategies borrowers can use to help lower their monthly student loan payments. These include:

Student Loan Refinancing

Borrowers may be able to reduce their student loan payments by refinancing student loans. With student loan refinancing, you take out a new loan with new terms from a private lender. The new loan is used to pay off your existing student loans.

Depending on your credit and financial profile, refinancing could result in a lower interest rate or a lower monthly payment depending on which terms you choose. Just be aware that you may pay more interest over the life of the loan if you refinance with an extended term.

Refinancing federal student loans with a private lender also forfeits your access to federal IDR plans, Public Service Loan Forgiveness, and Teacher Loan Forgiveness.

To find out how much you might be able to save with refinancing, try our student loan refi calculator.

Extended and Graduated Repayment Plans

Another option for current federal student loan borrowers is to consider the Extended Repayment Plan or the Graduated Repayment Plan to help lower their monthly payments.

To qualify for the Extended Repayment Plan, you must have more than $30,000 in outstanding Federal Direct Loans or Federal Family Education Loans (FFEL). Monthly payments on this plan are typically lower than payments of the standard 10-year repayment plan because borrowers have a longer period of time — up to 25 years — to pay them off. However, this means you’ll pay more in interest over the extended term.

Due to the recent legislation, the Extended Repayment Plan will be closed to new borrowers as of July 1, 2026. Current borrowers on the plan will continue to make payments on their extended term.

The Graduated Plan allows borrowers to pay off their loans over 10 years. Payments typically start out relatively low and increase gradually (usually every two years). The plan may be right for you if your income is low, but you expect it to rise.

The Graduated Repayment Plan is eligible to most current borrowers, however, the plan will be closed to new borrowers as of July 1, 2026. Borrowers currently on the plan can continue to make payments on the graduated timetable.

Applying for Deferment or Forbearance

You might also be able to qualify for a deferment or forbearance, allowing you to temporarily stop or reduce your federal student loan payments. Reasons you can currently apply for deferment include being in school, in the military, or unemployed. However, as part of the new domestic policy legislation, economic hardship and unemployment deferments will be eliminated for student loans made on or after July 1, 2027.

If you’re in deferment and you have certain federal loans, such as Direct Subsidized Loans, you typically won’t have to pay the interest that accrues during the deferment period.

You could apply for student loan forbearance if your federal student loan payments represent 20% or more of your gross monthly income, you’ve lost your job or seen your pay reduced, or you can’t pay because of medical bills, among other reasons. Note that interest accrues on your loans while they are in forbearance. As part of the new legislation, forbearance will be capped at nine months in any 24-month period beginning on July 1, 2027 for new borrowers.

The Takeaway

The government uses discretionary income to calculate your federal student loan monthly payments under a qualifying IDR plan. IBR and PAYE use a more generous formula to calculate discretionary income than ICR, and they offer lower monthly payments. Over the next few years, your IDR plan options will be whittled down to IBR and the new RAP plan, both of which use different income calculations.

If you’re not relying on income-driven repayment, you may want to consider the Graduated Repayment Plan or the Extended Repayment Plan to help lower your monthly payments, though those plans will be closing to new borrowers in the summer of 2026. Other options include deferment or forbearance or student loan refinancing.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

How does discretionary income impact income-driven repayment plans?

Currently, income-driven repayment plans base your monthly payments on your discretionary income and family size. Typically, the higher your discretionary income, the higher your monthly student loan payments will be. For example, on the Income-Based Repayment (IBR) Plan, your discretionary income is the difference between your taxable income and 150% of the poverty guideline for your family size and state.

What percentage of discretionary income is used for student loans?

The percentage of discretionary income that’s used for student loan payments depends on the income-driven repayment plan a borrower is enrolled in. For instance, on the Income-Based Repayment (IBR) Plan, your discretionary income is the difference between your taxable income and 150% of the poverty guideline for your family size and state. On the Income Contingent Repayment (ICR) Plan, your discretionary income is the difference between your taxable income and 100% of the poverty guideline for your family size and state.

Can refinancing affect your discretionary income calculation?

Yes, but in an indirect way. Refinancing federal student loans makes you ineligible for income-driven repayment plans that base your payments on your discretionary income and family size. If you think you may want to apply for an IDR plan, refinancing is probably not right for you.

How do I find out my discretionary income for student loans?

To calculate your discretionary income for income-driven repayment plans, you’ll need your adjusted gross income (AGI) and your family size (you plus a spouse and any children, if applicable). Next, determine the federal poverty guideline for your family size and state (you can find this information on the Health and Human Services website) and multiply that number by 150% for the IBR plan or 100% for the ICR plan. Subtract the resulting amount from your AGI to get your discretionary income.

Is discretionary income the same as disposable income?

No, discretionary income and disposable income are not the same thing. Discretionary income as defined by the Department of Education under an income-driven repayment plan is any adjusted gross income you have above 150% or 100% (depending on the plan) of the federal poverty guideline appropriate to your family size. Disposable income, by comparison, is the amount of money you have available after income taxes have been deducted.

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