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Deep Dive of Student Loan Simulator Calculations

In this article, we'll go through several hypothetical scenarios to better understand and verify the calculations performed by the Federal Student Aid Loan Simulator software.

Our baseline scenario:
This information was entered into the Loan Simulator in September 2025 (under "I Want to Find the Best Student Loan Repayment Strategy" by clicking on "Or Start from Scratch") , while checking only the boxes "I have a job or plan to get one soon" and "I filed taxes in the last two years" on the initial data gathering page [1].

Table 1 summarizes some of the key information obtained from the Loan Simulator after entering in the above information.

Table 1: Loan Simulator Results from the Baseline Scenario
Plan Monthly Payment Range Total to be Paid by Borrower Estimated End of Payment Term Estimated Amount Forgiven under PSLF
Pay As You Earn (PAYE) with PSLF $1,888 to $1,844 $223,983 August 2035 (10 years) $431,617
Income-Based Repayment (IBR) with PSLF $1,888 to $1,844 $223,983 August 2035 (10 years) $431,617
Income-Contingent Repayment (ICR) with PSLF $3,906 to $3,848 $465,311 August 2035 (10 years) $106,902
Standard Repayment $4,520 $542,348 August 2035 (10 years) $0
Extended Fixed Repayment $2,673 $802,020 August 2050 (25 years) $0
Graduated Repayment $2,595 to $7,786 $581,010 August 2035 (10 years) $0
Extended Graduated Repayment $2,130 to $3,920 $870,792 August 2050 (25 years) $0


As shown in Table 1 above, if this baseline scenario were to unfold as assumed, either the PAYE or IBR plans would appear to be superior to the others, because of the lowest total repayment of $223,983 and the highest amount forgiven under PSLF of $431,617.

The Loan Simulator also provides a full amortization schedule for the income-driven repayment plans (PAYE, IBR, and ICR in this example) under the "Total Paid" tab under each of the repayment plans.  The amortization schedule for the PAYE plan modeled in Table 1 above is provided in Table 2 below.

Table 2: Loan Simulator Amortization Schedule for the PAYE Plan with PSLF in the Baseline Scenario
Year Principal Paid Interest Paid Remaining Balance
2025 $0 $0 $400,000
2026 $0 $22,653 $402,908
2027 $0 $45,253 $405,867
2028 $0 $67,797 $408,883
2029 $0 $90,283 $411,957
2030 $0 $112,712 $415,088
2031 $0 $135,085 $418,275
2032 $0 $157,399 $421,521
2033 $0 $179,655 $424,825
2034 $0 $201,850 $428,190
2035 $0 $223,983 $0


First, let's go back to Table 1, and note that under the PAYE plan, the monthly payment (for the first year of payments) began at $1,888 per month.  This number can be verified as follows.

The annual payment of the PAYE plan is 10% of the discretionary income of the borrower [3].  Discretionary income for the PAYE plan is defined as the difference between the borrower's adjusted gross income (AGI) and 150% of the federal poverty line for the borrower's family size and state of residence.  In 2025, for a family size of one, in the state of California, the federal poverty line is $15,650 [2].  150% of $15,650 is $23,475.

Therefore, the annual payment of the PAYE plan in the first year is (0.1)($250,000 - $23,475) = $22,652.50.  Therefore, the monthly payment of the PAYE plan in the first year is $22,652.50/12 = $1,887.7083 per month.  This number, rounded to the nearest dollar, is the $1,888 displayed in Table 1.

Next, looking at the amortization table for the PAYE plan with PSLF (Table 2), one sees that under year "2026" (likely representing the year from September 2025 to August 2026), it shows "interest paid" of $22,653, which is the rounded number of $22,652.50 calculated in the preceding paragraph.

Since federal student loans accrue simple interest, we can calculate the amount of accrued interest for the first year of the loan as $400,000(0.0639) = $25,560.  Since the borrower only paid $22,652.50, all of this went toward the interest, and none of it went toward the principal of the loan.  The shortfall amount, $25,560 - 22,652.50 = $2,907.50 is the number showing up in the amortization table of the PAYE plan with PSLF (Table 2) in the column labeled "Remaining Balance" at the end of 2026 (likely representing August 2026, the end of the first full year of payments), by adding the original loan balance of $400,000 with $2,907.50.

Table 2 might suggest that the unpaid accrued interest of $2,907.50 in the first year is capitalized, but in fact, it is not being capitalized.  In other words, for the first month of year two, the interest is based on the original loan balance of $400,000, not the remaining loan balance of $402,908 at the end of the first year (which will be proven in later calculations in this article).

So that explains the monthly payments for the first year (September 2025 through August 2026).  How about the second year?

In the baseline scenario above, our annual salary remains at $250,000 in the second year, which is also the AGI since nothing else was entered into the Loan Simulator to lower AGI, such as contributions to a Health Savings Account, nor was anything entered into the Loan Simulator to raise AGI, such as additional sources of taxable income.  However, the federal poverty line is projected to grow each year.  The Loan Simulator uses many assumptions, one of which is that it uses the non-seasonally adjusted Consumer Price Index (CPI) published by the Congressional Budget Office (CBO) in its estimate of annual inflation, which is used to project how the federal poverty line will grow in the future [4].

According to the CBO, the growth rate of the CPI-U for 2026 is 2.4%, for 2027 and 2028 is 2.3% per year, for 2029 through 2034 is 2.2% per year, and for 2035 and beyond is 2.3% per year [5].

Therefore, 150% of the federal poverty line for 2026 (one year ahead, but for our purposes, this will represent the "second year" from September 2026 through August 2027 since we have already taken care of September 2025 through August 2026 as the "first year") is $23,475(1.024) = $24,038.40.

Therefore, for the second year (labeled row "2027" in the amortization table in Table 2), the annual payment under the PAYE plan is (0.1)($250,000 - $24,038.40) = $22,596.16.  Or, for the second year, the monthly payment is $22,596.16/12 = $1,883.0133.  As can be seen, since the AGI stayed the same from the first year to the second year of repayment, and the federal poverty line grew slightly, the borrower's monthly payment went down, as expected, from roughly $1,888 per month to $1,883 per month.

This number, $1,883 per month in the second year, can be seen by going into the results panel for the PAYE with PSLF plan under “View Full Plan,” then clicking the “Monthly Payment $1,888-$1,844” tab, and viewing the “Payments Over Time” graph under “2027” (representing the second year), which shows the monthly payment dropping to $1,883 in the second year.

So, in the second year, our borrower paid in $22,596.16 under the PAYE plan with PSLF.  This number ties out fairly well with the amortization table in Table 2.  This number ($22,596.16), added to what the borrower paid in the first year ($22,652.50), equals $45,248.66.  In the amortization table, for the second year (labeled "2027"), it says the total interest paid by the end of the second year (total amount paid by the borrower toward interest) was $45,253.  The difference of $45,253 - $45,248.66 = $4.34 is likely due to rounding error.

To skip to the final, or tenth year of payments, the Loan Simulator indicated the monthly payment for the PAYE plan with PSLF was down to $1,844 from the amount of $1,888 in the first year (Table 1).

We can verify that number ($1,844) as follows.  In 2025, 150% of the federal poverty line was $23,475.  Simply inflate the number forward nine more years using the CBO estimates of inflation according to the CPI-U estimates provided, as follows:

$23,475(1.024)(1.0232)(1.0226) = $28,665.6767

Next, the annual payment in the tenth year, September 2034 through August 2035, is (0.1)($250,000 - $28,665.6767) = $22,133.43, or a monthly payment of $22,133.43/12 = $1,844.45, which rounds to $1,844.

Another quick check is, in the tenth year, our borrower paid in (all toward interest, nothing toward principal, as before) another $22,133.43 according to what we think their monthly payments should be.  The amortization table (Table 2) suggests the borrower paid in $22,133 ($223,983 - $201,850 = $22,133) in the tenth year (what the Loan Simulator labels as row "2035" which represents September 2034 through August 2035 in this scenario, which is the "tenth year").

In the tenth year, $25,560 of interest accrued [$400,000(0.0639) = $25,560], yet only $22,133 of payments of were made.  The difference ($3,427), representing unpaid accrued interest (25,560 - $22,133 = $3,427), was added to the balance at the end of the ninth year ($428,190 as shown in Table 2), to yield $431,617 ($428,190 + $3,427 = $431,617), the amount the Loan Simulator indicated was forgiven under PSLF at the end of the tenth year (in August 2035 in Table 1).

The calculations in the preceding paragraph prove that the Loan Simulator is not "capitalizing interest," since even in the tenth year, it is only accruing interest on the original loan balance of $400,000, not the unpaid interest plus principal balance at the end of the ninth year of $428,190.  This is consistent with the fact that these federal student loans use simple interest not compound interest.

Without intermediate rounding errors, a ten-year amortization table of the above baseline scenario in a spreadsheet (not shown) would have led to a PSLF forgiveness amount of $431,626 under the PAYE plan, which is very close to the Loan Simulator's amount of $431,617 (Table 1), and our borrower paying in a total of $223,974 (all toward interest), which is very close to the Loan Simulator's amount of $223,983 (Table 2).

That takes care of explaining where the numbers came from in the PAYE with PSLF baseline scenario in Table 1.  The same numbers and Loan Simulator amortization table apply to the IBR with PSLF baseline scenario shown in Table 1.

Now onto ICR with PSLF.  Table 3 shows the Loan Simulator amortization table for the ICR with PSLF baseline scenario.

Table 3: Loan Simulator Amortization Schedule for the ICR Plan with PSLF in the Baseline Scenario
Year Principal Paid Interest Paid Remaining Balance
2025 $0 $0 $400,000
2026 $21,945 $24,925 $378,055
2027 $45,264 $48,407 $354,736
2028 $70,038 $70,358 $329,962
2029 $96,364 $90,680 $303,636
2030 $124,344 $109,272 $275,656
2031 $154,087 $126,026 $245,913
2032 $185,708 $140,824 $214,292
2033 $219,329 $153,544 $180,671
2034 $255,079 $164,054 $144,921
2035 $293,098 $172,214 $0


Table 1 lists the initial monthly payment for the ICR plan with PSLF as $3,906.  The definition of discretionary income for the ICR plan is 20% of the difference between the borrower's AGI and 100% of the federal poverty guideline [3].

As mentioned before, in 2025, for a family size of one, in the state of California, the federal poverty line is $15,650 [2].

The annual payment of the ICR plan in the first year is (0.2)($250,000 - $15,650) = $46,870.  Therefore, the monthly payment of the ICR plan in the first year is $46,870/12 = $3,905.833 per month.  This number, rounded to the nearest dollar, is the $3,906 displayed (Table 1).  This monthly payment ($3,906/month), unlike for the PAYE and IBR scenarios above ($1,888/month), is more than enough to cover the interest (approximately $2,130/month, which is [$400,000(0.0639)]/12 = $2,130/month), such that the principal balance is reduced in the first year (Table 3).

Table 3 splits this first-year ICR annual payment of $46,870 into $24,925 applied toward interest and $21,945 applied toward the principal ($24,925 + $21,945 = $46,870).  If we were to assume annual interest accrual, which is incorrect, it would have been the $400,000(0.0639) = $25,560 number from before.  However, Table 3 correctly displays the interest in the first year as $24,925 (calculated later on in this article) instead of $25,560.

The original loan balance of $400,000 minus the $21,945 principal paid down in year one leads to an end of year one loan balance of $378,055 shown in Table 3 ($400,000 - $21,945 = $378,055).

For the PAYE and IBR plans in the baseline scenario, since the borrower was not paying enough each month (or year) to pay down the accrued interest, we could get away with doing annual interest calculations, since it is based on simple interest accrual instead of compound interest accrual.  For the ICR plan however, since we are paying more than the accrued interest amount each month (or year), we need to create our own monthly amortization table for the first year to establish where the $24,925 interest number came from, as shown below in Table 4.

Table 4: Monthly Amortization Schedule for the ICR plan with PSLF in the Baseline Scenario for the First Year
Month Beginning Balance Interest Payment Ending Balance
1 $400,000.00 $2,130.00 ($3,905.83) $398,224.17
2 $398,224.17 $2,120.54 ($3,905.83) $396,438.88
3 $396,438.88 $2,111.04 ($3,905.83) $394,644.08
4 $394,644.08 $2,101.48 ($3,905.83) $392,839.73
5 $392,839.73 $2,091.87 ($3,905.83) $391,025.77
6 $391,025.77 $2,082.21 ($3,905.83) $389,202.14
7 $389,202.14 $2,072.50 ($3,905.83) $387,368.81
8 $387,368.81 $2,062.74 ($3,905.83) $385,525.72
9 $385,525.72 $2,052.92 ($3,905.83) $383,672.81
10 $383,672.81 $2,043.06 ($3,905.83) $381,810.03
11 $381,810.03 $2,033.14 ($3,905.83) $379,937.34
12 $379,937.34 $2,023.17 ($3,905.83) $378,054.67
Total $24,924.67 ($46,870.00)


If we sum up the interest column for year one for the ICR plan, it sums to $24,924.67 (Table 4) rounded to the nearest cent, which the Loan Simulator displays as $24,925 in Table 3.

Note how the interest column in Table 4 declines each month, since the beginning balance is declining each month.  For example, the accrued interest in the second month is ($398,224.17)(0.0639/12) = $2,120.54.  This assumes each month consists of 365/12 = 30.416 days instead of the range of 28 to 31 days for actual months.

If we were to re-do the calculations to take into consideration the different number of days in each of the 12 months and specify "month one" (September 2025) as having 30 days, "month two" (October 2025) as having 31 days, and so on, the numbers would be slightly different, as shown in Table 5 (and assuming the current date is September 1, 2025).

Table 5: Monthly Amortization Schedule for the ICR plan with PSLF in the Baseline Scenario Taking into Consideration the Different Number of Days in Each of the 12 Months
Month Days per Month Beginning Balance Interest Payment Ending Balance
1 30 $400,000.00 $2,100.82 ($3,905.83) $398,194.99
2 31 $398,194.99 $2,161.05 ($3,905.83) $396,450.21
3 30 $396,450.21 $2,082.18 ($3,905.83) $394,626.55
4 31 $394,626.55 $2,141.69 ($3,905.83) $392,862.41
5 31 $392,862.41 $2,132.11 ($3,905.83) $391,088.69
6 28 $391,088.69 $1,917.08 ($3,905.83) $389,099.94
7 31 $389,099.94 $2,111.69 ($3,905.83) $387,305.80
8 30 $387,305.80 $2,034.15 ($3,905.83) $385,434.12
9 31 $385,434.12 $2,091.80 ($3,905.83) $383,620.08
10 30 $383,620.08 $2,014.79 ($3,905.83) $381,729.04
11 31 $381,729.04 $2,071.69 ($3,905.83) $379,894.90
12 31 $379,894.90 $2,061.74 ($3,905.83) $378,050.80
Total 365 $24,920.80 ($46,870.00)


In Table 5, the interest for the second month is ($398,194.99)(0.0639/365)(31) = $2,161.05.

This is not what the Loan Simulator is doing, or it would have reported the ending balance at the end of year one as $378,051 (Table 5) instead of the $378,055 shown in Table 3 and verified in Table 4 (which assumed each month has the same number of days).

Table 4 (consistent with the Loan Simulator's numbers in this scenario) assumes the payments are made at the end of each month, such that the interest accrues based on the beginning loan principal balance each month, and any remaining payment beyond the accrued interest pays down the loan principal balance.

Making payments at the beginning of each month (as in Table 6), instead of the end of each month (as in Table 4), would lead to paying down the principal balance faster, as shown in Table 6 below, assuming each month has the same number of days (which was consistent with the Loan Simulator's assumption).

Table 6: Monthly Amortization Schedule for the ICR plan with PSLF in the Baseline Scenario with Payments at the Beginning of Each Month
Month Beginning Balance Payment Interest Ending Balance
1 $400,000.00 ($3,905.83) $2,109.20 $398,203.37
2 $398,203.37 ($3,905.83) $2,099.63 $396,397.17
3 $396,397.17 ($3,905.83) $2,090.02 $394,581.35
4 $394,581.35 ($3,905.83) $2,080.35 $392,755.87
5 $392,755.87 ($3,905.83) $2,070.63 $390,920.66
6 $390,920.66 ($3,905.83) $2,060.85 $389,075.68
7 $389,075.68 ($3,905.83) $2,051.03 $387,220.88
8 $387,220.88 ($3,905.83) $2,041.15 $385,356.20
9 $385,356.20 ($3,905.83) $2,031.22 $383,481.58
10 $383,481.58 ($3,905.83) $2,021.24 $381,596.99
11 $381,596.99 ($3,905.83) $2,011.21 $379,702.36
12 $379,702.36 ($3,905.83) $2,001.12 $377,797.65
Total ($46,870.00) $24,667.65


In Table 6, the interest expense in the second month is ($398,203.37 - $3,905.83)(0.0639/12) = $2,099.63.  In other words, here, the interest would only be calculated on the "beginning balance minus the monthly payment" each month, instead of on the full "beginning balance."

As shown in Table 6, if the payments were at the beginning of each month, the loan balance at the end of the first year would have been $377,798, instead of what the Loan Simulator showed as $378,055 in Table 3 (a difference of $257).

Comparing Tables 4 and 6, if the payments were made at the end of each month (consistent with the Loan Simulator's assumption), in the first year, the total interest paid was $24,924.67 for the ICR with PSLF scenario, whereas if the payments were made at the beginning of each month, in the first year, the total interest paid would be $24,667.65, a difference of $257.02 which would account for the $257 difference in ending balances discussed in the prior paragraph.

A financial calculator set up to model payments occurring at the beginning of each month would yield the same value shown in Table 6 as the "future value" ($377,797.65) in 12 months as follows:

N = 12 months
PV = +$400,000
I = 6.39/12 = 0.5325 (percent) per month
PMT = -$3,905.83333333
FV = -$377,797.6477

Alternatively, the following formula could be entered into a cell in Microsoft Excel:

=fv(0.005325,12,-3905.83333333,400000,1)

Table 1 showed that in the tenth year, the ICR plan with PSLF had a monthly payment of $3,848.  Again, the 2025 federal poverty line for a single person in California was $15,650.  Using the same CBO estimates of inflation as before, we can compute that 100% of the federal poverty line in the tenth year is estimated as:

$15,650(1.024)(1.0232)(1.0226) = $19,110.4512

The annual payment in the tenth year (September 2034 through August 2035) for the ICR with PSLF plan is (0.2)($250,000 - $19,110.4512) = $46,177.91, or a monthly payment of $46,177.91/12 = $3,848.16, which rounds to $3,848.

In Table 1, for the ICR with PSLF plan, the total amount paid of $465,311 can be calculated as the sum of the principal paid of $293,098 (Table 3) and the interest paid of $172,214 (Table 3) of $465,312 ($293,098 + $172,214 = $465,312), off by one dollar due to rounding error.

The estimated amount forgiven under PSLF for the ICR scenario above of $106,902 (Table 1) can be calculated by taking the remaining loan balance at the end of the 9th year (or the beginning of the 10th year) of $144,921 (Table 3), and subtracting the amount of principal paid in the tenth year of $38,019 ($293,098 - $255,079 = $38,019 from Table 3), to obtain $106,902 ($144,921 - $38,019 = $106,902).

Table 3 shows interest paid of $8,160 in the tenth year ($172,214 - $164,054 = $8,160) for the ICR with PSLF scenario per the Loan Simulator, which can be calculated as shown in Table 7 below starting with the number the Loan Simulator provides as the loan balance at the end of year 9, or the beginning of year 10, of $144,921 (Table 3).

Table 7: Monthly Amortization Schedule for the ICR plan with PSLF in the Baseline Scenario for the Tenth Year Assuming a Balance of $144,921 at the End of the Ninth Year
Month Beginning Balance Interest Payment Ending Balance
109 $144,921.00 $771.70 ($3,848.16) $141,844.55
110 $141,844.55 $755.32 ($3,848.16) $138,751.71
111 $138,751.71 $738.85 ($3,848.16) $135,642.40
112 $135,642.40 $722.30 ($3,848.16) $132,516.54
113 $132,516.54 $705.65 ($3,848.16) $129,374.03
114 $129,374.03 $688.92 ($3,848.16) $126,214.79
115 $126,214.79 $672.09 ($3,848.16) $123,038.72
116 $123,038.72 $655.18 ($3,848.16) $119,845.74
117 $119,845.74 $638.18 ($3,848.16) $116,635.76
118 $116,635.76 $621.09 ($3,848.16) $113,408.69
119 $113,408.69 $603.90 ($3,848.16) $110,164.43
120 $110,164.43 $586.63 ($3,848.16) $106,902.90
Total $8,159.81 ($46,177.91)


Summing the interest paid column in Table 7 yields $8,159.81, which rounds to $8,160 (listed in the preceding paragraph).  In Table 7, the estimated amount forgiven under PSLF of $106,903 (amount of balance at end of year 10 just prior to the forgiveness occurring) closely matches the estimate in Table 1 of $106,902 for the ICR plan with PSLF.

In addition, Table 3 shows principal paid of $38,019 ($293,098 - $255,079 = $38,019) and interest paid of $8,160 ($172,214 - $164,054 = $8,160) in the tenth year, which sum to a total amount paid of $46,179 in the tenth year ($38,019 + $8,160 = $46,179), which closely ties out with our tenth year payments of $46,177.91 shown in Table 7, off by one dollar due to rounding error.

A 120-month amortization table of the ICR with PSLF forgiveness in the baseline scenario was created in a spreadsheet (not shown), with different monthly payments for each of the ten years, and without any rounding errors, showed a PSLF forgiveness amount of $106,923 which aligns closely with the $106,902 estimated by the Loan Simulator.

That concludes tying out the numbers shown for the three income-driven repayment (PAYE, IBR, and ICR) plans under the assumption of PSLF in Table 1.

Before moving on to the four non-income-driven repayment plan options shown in Table 1, we can analyze the impact of choosing the above three income-driven repayment plans both with and without PSLF in Table 8.

Table 8: Loan Simulator Results for the Income-Driven Repayment Plans with and without PSLF in the Baseline Scenario
Plan Monthly Payment Range Total to be Paid by Borrower Estimated End of Payment Term Estimated End of Payment Balance
PAYE with PSLF $1,888 to $1,844 $223,983 August 2035 (10 years) $431,617 (forgiven under PSLF)
PAYE without PSLF $1,888 to $1,784 $441,461 August 2045 (20 years) $469,739
IBR with PSLF $1,888 to $1,844 $223,983 August 2035 (10 years) $431,617 (forgiven under PSLF)
IBR without PSLF $1,888 to $1,784 $441,461 August 2045 (20 years) $469,739 (forgiven under IBR)
ICR with PSLF $3,906 to $3,848 $465,311 August 2035 (10 years) $106,902 (forgiven under PSLF)
ICR without PSLF $3,906 to $3,826 $581,334 March 2038 (12 years, 7 months) $0


As Table 8 shows, if one pursued PAYE with PSLF, they would pay an estimated total of $223,983 over 10 years, and have $431,617 forgiven under PSLF, which would not be included in their gross income for federal income tax purposes in the year of forgiveness (unless tax laws change between now and when forgiveness occurs), but the forgiven amount may be included in their gross income for state income tax purposes depending on their state and the laws in effect at the time of forgiveness.

If one pursued PAYE without PSLF, they would pay an estimated total of $441,461 over 20 years, and potentially have $469,739 forgiven under the PAYE program (assuming the PAYE program would once again allow forgiveness after 20 years of payments, which may or may not be the case--forgiveness under PAYE or ICR, without PSLF, is currently paused due to ongoing court injunctions, further discussed a few paragraphs below), and in such event, the forgiven amount would be included in their gross income for federal income tax purposes in the year of forgiveness (unless tax laws change between now and when potential forgiveness occurs) and may be included in their gross income for state income tax purposes depending on their state and the laws in effect at the time of forgiveness.

The IBR numbers are the same as the PAYE numbers as shown in Table 8.  However, unlike PAYE or ICR without PSLF, IBR without PSLF does currently allow for forgiveness after the required number of payments.  In other words, if we could fast-forward to August 2045, and no laws changed between now and then, the $469,739 remaining balance shown in the IBR without PSLF scenario would be forgiven, but would be included in the borrower's gross income on their 2045 federal income tax return, and depending on the borrower's state of residence at the time of forgiveness, perhaps included in the borrower's gross income on their 2045 state income tax return.  However, if we could fast-forward to August 2045, and no laws changed between now and then, the $469,739 remaining balance shown in the PAYE without PSLF scenario would not be forgiven.

As the Loan Simulator estimates, if one were to pursue ICR without PSLF, a total of $581,334 would be paid, and the entire loan balance would be paid off after about 12 years and 7 months such that no forgiveness would occur.

These income-driven repayment plans are not as advantageous without PSLF as they are with PSLF, from a total payment perspective, in some cases a forgiveness perspective, and in some cases an income tax liability perspective.

Recent challenges have brought into question the legality of forgiveness, for those cases not qualifying for PSLF, under the PAYE and ICR plans (along with the SAVE plan, which is currently not accepting new applications), whereas it seems the forgiveness under the IBR plan, for those cases not qualifying for PSLF, is on better legal footing since forgiveness under the IBR plan was actually approved by Congress [6, 7].

Furthermore, a recent Presidential Executive Order has indicated certain organizations which previously may have qualified toward the PSLF program may no longer qualify based on certain activities which are deemed illegal or against the public's interest [8, 9].

These issues may need to be taken into consideration when choosing a student loan repayment plan beyond just running the numbers.

We now consider the four non-income-driven (traditional) repayment plans listed in Table 1 (Standard Repayment, Extended Fixed Repayment, Graduated Repayment, and Extended Graduated Repayment).  Since these four repayment plans are not income-driven, their monthly payments are not based on the borrower's income (discretionary income).  None of these four repayment plans are eligible for forgiveness under PSLF, and none of these four repayment plans are eligible for forgiveness on their own.

Let's start with the Standard Repayment plan.  This is a 10-year (120-month) fully amortizing loan (i.e., principal balance of $0 at the end of the payment term) with one fixed monthly payment during the entire duration of the payment term.

In our baseline scenario, there were $400,000 of Direct unsubsidized loans with a 6.39% annual interest rate.  We can enter in this information into a financial calculator (with payments at the end of each month) to confirm the monthly payment listed in Table 1 of $4,520 is correct as follows:

N = 120 months
PV = +$400,000
I = 6.39/12 = 0.5325 (percent) per month
FV = $0 (indicating the loan is fully paid off at the end of 120 months)
PMT = -$4,519.5636 per month

Or, we can create a 120-month amortization table (not shown), which would show the loan balance being fully paid off after 120 monthly payments with a monthly payment of $4,519.5636.

Table 1 indicates the borrower under the baseline scenario would pay a total of $542,348 in interest and principal payments ($400,000 of principal and $142,348 in interest) under the Standard Repayment Plan.  As a check, ($4,519.5636/month)(120 months) = $542,347.63, consistent with what the Loan Simulator displayed as the total payments.

Next, we have the Extended Fixed Repayment Plan.  This is a 25-year (300-month) fully amortizing loan with one fixed monthly payment during the entire duration of the payment term.

We can enter in this information into a financial calculator (with payments at the end of each month) to confirm the monthly payment listed in Table 1 of $2,673 is correct as follows:

N = 300 months
PV = +$400,000
I = 6.39/12 = 0.5325 (percent) per month
FV = $0 (indicating the loan is fully paid off at the end of 300 months)
PMT = -$2,673.3993 per month

Table 1 indicates the borrower under the baseline scenario would pay a total of $802,020 in interest and principal payments ($400,000 of principal and $402,020 in interest) under the Extended Fixed Repayment Plan.  As a check, ($2,673.3993/month)(300 months) = $802,019.79, consistent with what the Loan Simulator displayed as the total payments.

Next, we have the Graduated Repayment plan.  Table 1 shows the monthly payments range from $2,595 to $7,786, with a total of $581,010 being paid.  This is a fully amortizing loan which has five different monthly payments, each lasting two years.

One needs to actually go into the Loan Simulator output and click on "View and Compare All Plans (7)" and then find the Graduated Repayment Plan and click "View Full Plan" and then click the dropdown menu next to "Monthly Payment $2,595-$7,786" to see a graph of the monthly payments rising after each 24-month period.  Hovering your mouse over the graph shows that the five different levels of monthly payments (rounded to the nearest dollar), are $2,595 for the first 24 months, $3,416 for the next 24 months, $4,495 for the next 24 months, $5,916 for the next 24 months, and $7,786 for the final 24 months.

The Loan Simulator's graph shown is a bit confusing, but those are the correct numbers, since a 120-month amortization table (not shown), using those monthly payments yields a loan balance of $26.11 at the end of the payment term, a total of $181,018.12 in interest payments, and $580,992.00 of total payments.

The $26 of remaining balance is likely due to rounding error.  Taking $580,992 - $181,018.12 = $399,973.88, which is approximately $26 different than $400,000, our original loan balance.

These numbers match closely with the Loan Simulator numbers, which were that the borrower paid a total of $581,010 ($400,000 of principal and $181,010 of interest).  That is within $8 of the total interest obtained by the 120-month amortization table, and likely solely due to rounding error ($181,018 - $181,010 = $8).

One of the rules of the Graduated Repayment plan is that none of the monthly payments can be more than three times larger than any of the other monthly payments.  And as a check, taking $7,786/$2,595 = 3.000385, which would likely be no more than 3.0 without rounding errors.

Finally, we have the Extended Graduated Repayment plan, which is a 25-year fully amortizing loan, whose monthly payments rise every 2 years. Table 1 indicates the monthly payment range from $2,130 to $3,920, with a total of $870,792 in payments.

Using the similar “mouse over” technique, one can determine the monthly payments are:

$2,130
$2,241
$2,358
$2,481
$2,610
$2,746
$2,889
$3,040
$3,199
$3,366
$3,541
$3,726
$3,920

The $3,920 amount only applies for the final 12 months, whereas all of the other amounts apply for 24 months.

A 300-month amortization table (not shown), using those monthly payments, yields a loan balance of -$170.07 at the end of the payment term (paying $170 beyond the loan's principal balance), a total of $470,717.93 in interest payments, and $870,888 of total payments.

The -$170 of remaining balance is likely due to rounding error.  Taking $870,888 - $470,717.93 = $400,170.07, which is approximately $170 different than $400,000, our original loan balance.

These numbers match closely with the Loan Simulator numbers, which were that the borrower paid a total of $870,792 ($400,000 of principal and $470,792 of interest).  That is within $74 of the total interest obtained by the 300-month amortization table, and likely solely due to rounding error ($470,792 - $470,718 = $74).

Upon making this 300-month amortization table, one realizes that during the first 24 months, the monthly payment of $2,130 exactly offsets the monthly interest of $2,130, which is $400,000(0.0639/12).  So the principal was not being paid down until months 25 through 300.  This is within the rules of the Extended Graduated Repayment plan, which says “Your payment will never be less than the amount of interest that accrues between payments.  This helps ensure you make progress paying down your principal.”  For months 1 through 24 however, the borrower in this example is not making progress paying down the principal.  In other words, the first ($2,130/month)(24 months) = $51,120 went 100% toward interest and 0% toward paying down the principal.

This concludes the explanation and verification of the baseline scenario of data contained in Tables 1 and 8.

The next scenario is a salary of $500,000 per year instead of $250,000 per year, otherwise with the same assumptions as the baseline scenario.

Table 9 lists the income-driven repayment plans available for this borrower both with and without PSLF.

Table 9: Loan Simulator Results for the Income-Driven Repayment Plans with and without PSLF (Salary of $500,000 per year)
Plan Monthly Payment Range Total to be Paid by Borrower Estimated End of Payment Term Estimated End of Payment Balance
PAYE with PSLF $3,971 to $3,928 $473,983 August 2035 (10 years) $94,945 (forgiven under PSLF)
PAYE without PSLF $3,971 to $3,911 $575,903 November 2037 (12 years, 3 months) $0
IBR with PSLF $3,971 to $3,928 $473,983 August 2035 (10 years) $94,945 (forgiven under PSLF)
IBR without PSLF $3,971 to $3,911 $575,903 November 2037 (12 years, 3 months) $0
ICR with or without PSLF $7,969 $466,660 July 2030 (4 years, 11 months) $0


Given an annual salary of $500,000 per year, the PAYE and IBR initial monthly payments for the first year should be:

(0.1)($500,000 - $23,475)/12 = $3,971.0416 per month, which is consistent with Table 9

The ICR initial monthly payments based on the borrower's income for the first five years would be:

Year 1: (0.2)($500,000 - $15,650)/12 = $8,072.50 per month
Year 2: {(0.2)[$500,000 - ($15,650)(1.024)]}/12 = $8,066.24 per month
Year 3: {(0.2)[$500,000 - ($15,650)(1.024)(1.023)]}/12 = $8,060.0969 per month
Year 4: {(0.2)[$500,000 - ($15,650)(1.024)(1.023)2]}/12 = $8,053.8124 per month
Year 5: {(0.2)[$500,000 - ($15,650)(1.024)(1.023)2(1.022)]}/12 = $8,047.6629 per month

However, the Loan Simulator limits the ICR payments in the above scenario as the lesser of 20% of discretionary income ($8,072.50 per month to $8,047.55 per month for the first five years), or "the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income." [10]

The "adjusted according to your income" part of the preceding sentence is further explained in the Federal Register's annual updates to the ICR plan formula, which as of 2025, for a single person with AGI over $352,418 (our borrower's AGI was $500,000 in this scenario), has a 200% factor applied to the stable monthly payment amount which would be needed to fully amortize the loan over 12 years [11].

We can determine the monthly payment needed to fully amortize the loan over 12 years (144 months) as follows using a financial calculator (with payments at the end of each month):

N = 144 months
PV = +$400,000
I = 6.39/12 = 0.5325 (percent) per month
FV = $0 (indicating the loan is fully paid off at the end of 144 months)
PMT = -$3,984.6079 per month

Next, we apply a factor of 200%, or double, the amount of $3,984.61 per month, to achieve $7,969.22 per month, which the Loan Simulator showed rounded to $7,969 per month for the duration of the loan (Table 9).

An amortization table was created (not shown) using the Loan Simulator's monthly payments of $7,969 to determine when the loan would be fully paid off.  After 58 months, the loan balance was $4,436.40.  During the 59th month (4 years, 11 months into the loan, consistent with Table 9), interest accrued of $23.62.  Summing the following numbers leads to the total amount of payments if the Loan Simulator's numbers are used, required to pay off the loan:

(58 months)($7,969/month) + $4,436.40 + $23.62 = $466,662.02

This matches closely with what the Loan Simulator displayed in Table 9 as $466,660 of total payments, the difference of $2 due to rounding error.

A final salary scenario is the borrower making $750,000 per year, with all other assumptions the same as the baseline scenario.  In this case, the Loan Simulator indicates the only income-driven repayment plan the borrower would be eligible for is the ICR plan, as shown in Table 10.

Table 10: Loan Simulator Results for the Income-Driven Repayment Plans with and without PSLF (Salary of $750,000 per year)
Plan Monthly Payment Range Total to be Paid by Borrower Estimated End of Payment Term Estimated End of Payment Balance
ICR with or without PSLF $7,969 $466,660 July 2030 (4 years, 11 months) $0


The numbers for the ICR plan are exactly the same in Table 9 and Table 10, since in both cases, the lower of the two numbers were the $7,969 monthly payments instead of the numbers based on a percentage of the borrower's discretionary income.

In the scenario with $750,000 of annual salary (Table 10), the borrower was not eligible for the PAYE or IBR plans, since these plans have monthly payments of 10% of your discretionary income, "but never more than what you would pay under the 10-year Standard Repayment Plan." [10]

We previously determined the monthly payment for a (10-year) Standard Repayment Plan was $4,520 (Table 1).  With an annual salary of $750,000, the first year's payments, using the formula applicable to PAYE and IBR would have been:

(0.1)($750,000 - $23,475)/12 = $6,054.375 per month

Since $6,054 per month exceeds $4,520 per month, the borrower is not eligible for either PAYE or IBR in the scenario with an annual salary of $750,000 (the second, third, fourth, and fifth year's monthly payments, though slightly less than $6,054 per month in succession, would all exceed $4,520 per month, such that at no point during the first five years of the loan duration would the borrower qualify for the PAYE or IBR plans).

As shown above, at some point, the borrower's income is too high to qualify for any income-driven repayment plans other than ICR and is too high to qualify for any type of loan forgiveness (since the loan is fully repaid well before 10 years of payments).

In addition to considering the four non-income driven repayment options (shown in Table 1), which are always available to those with Direct federal student loans, borrowers can consider either a partial or full refinance of their federal student loans, a discussion of which is beyond the scope of this article.

One of the drawbacks of the Loan Simulator is the lack of flexibility in some of the future assumptions.  For example, it can model your income growing by a fixed, stable amount per year, such as 3% per year or 5% per year, for the duration of the analysis.  But it cannot model your income abruptly changing, such as going from the salary of a resident to an attending or another one-time significant change in salary.

It also cannot accommodate changes in your family size or tax filing status.  For example, if you start out single and file taxes as such, that assumption is carried throughout the duration of the analysis.  If you get married and have two children between now and the end of repaying your loans, your family size would increase to four instead of one, and your tax filing status would change.

Alternatively, if you have children who are your dependents currently but will not be your dependents for the entire duration of your repayment period, your family size may decrease during the repayment period.

These scenarios could perhaps significantly change your estimated monthly payments and the other associated numbers for the income-driven repayment plans but would not be correctly modeled in the Loan Simulator's displayed information for the years after such changes.

Moving to or from Alaska or Hawaii during the repayment period from elsewhere in the United States would change the federal poverty guideline numbers but would not be correctly modeled in the Loan Simulator's displayed information for the years after such a move.

You may also wish to use different inflation assumptions than the CBO estimates built into the Loan Simulator software.

Abruptly changing items which affect your AGI, such as 403(b) contributions or other sources of taxable income from year-to-year, cannot be modeled by the Loan Simulator.  These additional items influencing AGI (which can be entered regarding the first year) are inflated by the Loan Simulator at the same rate you entered as your expected salary growth rate.

Fortunately, if you expect significant changes in one or more of these items during your repayment period, you could perhaps create your own spreadsheet to more closely model your expected future numbers than the Loan Simulator allows you to model at this time, before deciding on which student loan repayment strategy to pursue.

Finally, as discussed in another article titled 15-Year Versus 30-Year Fixed Rate Mortgage Comparison, you may wish to perform some additional calculations for more of an apples-to-apples comparison when considering repayment options with different monthly payments and durations (and in the case of Direct Federal student loans, perhaps tax liabilities at the end of the repayment period if certain types of forgiveness are considered taxable income for federal and/or state income tax purposes, which are a form of "payment"), instead of just looking at the "total amount of payments" (total cash outflows) lumped together which do not take into consideration time value of money (or compound growth) considerations.

If you are a prospective client and would like to learn more about hiring us for a financial consultation, where, among other things, we would help you evaluate your student loan repayment options, please visit our Schedule Meeting page.

References:

[1]  Calculate Your Federal Student Loan Repayment Options with Loan Simulator.  Federal Student Aid: An Office of the U.S. Department of Education.  Available: https://studentaid.gov/loan-simulator/

[2]  HHS Poverty Guidelines for 2025.  U.S. Department of Health and Human Services.  Available: https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines

[3]  Discretionary Income.  Federal Student Aid: An Office of the U.S. Department of Education.  Available: https://studentaid.gov/help-center/answers/article/discretionary-income

[4]  Assumptions Used to Provide Repayment Estimates.  Federal Student Aid: An Office of the U.S. Department of Education.  Available: https://studentaid.gov/loan-simulator/repayment/results/plan/(resultsPanel:assumptions-panel//infoPanel:contact-us-panel)

[5]  Inflation: Growth of CPI-U.  Congressional Budget Office.  Available: https://www.cbo.gov/data/budget-economic-data#4, scroll down to "Long-Term Economic Projections" and click on "Mar 2025", which opens an Excel file, click on tab "1. Econ Vars_Annual Rates" and scroll down to "Inflation, Growth of the CPI-U" (row 36), then to the column for 2026 (column AG), and so on.

[6]  U.S. Department of Education Continues to Improve Federal Student Loan Repayment Options, Addresses Illegal Biden Administration Actions.  July, 9, 2025.  U.S. Department of Education.  Available: https://www.ed.gov/about/news/press-release/us-department-of-education-continues-improve-federal-student-loan-repayment-options-addresses-illegal-biden-administration-actions

[7]  United States Court of Appeals for the Eighth Circuit.  No. 24-2332.  Available: https://ecf.ca8.uscourts.gov/opndir/25/02/242332P.pdf

[8]  U.S. Department of Education Issues Proposed Public Service Program Rules to Protect American Taxpayers.  August 18, 2025.  U.S. Department of Education.  Available: https://www.ed.gov/about/news/press-release/us-department-of-education-issues-proposed-public-service-program-rules-protect-american-taxpayers

[9]  Restoring Public Service Loan Forgiveness.  Executive Order of President Donald J. Trump.  March 7, 2025.  The White House.  Available: https://www.whitehouse.gov/presidential-actions/2025/03/restoring-public-service-loan-forgiveness/

[10]  Income-Driven Repayment Plans.  Federal Student Aid: An Office of the U.S. Department of Education.  Available: https://studentaid.gov/manage-loans/repayment/plans#income-driven

[11]  Annual Updates to the Income-Contingent Repayment (ICR) Plan Formula for 2025-William D. Ford Federal Direct Loan Program.  A Notice by the Education Department on 08/05/2025.  Available: https://www.federalregister.gov/documents/2025/08/05/2025-14806/annual-updates-to-the-income-contingent-repayment-icr-plan-formula-for-2025-william-d-ford-federal



Mike McErlane, DO, MBA, CFP®, CFA®, RICP®, EA, MCEP®

Mike McErlane is the owner and founder of Comprehensive Financial Planning for Doctors, LLC based in Frisco, Texas.

Comprehensive Financial Planning for Doctors, LLC (CFPFD) is an Investment Adviser registered with the Texas State Securities Board.  Registration of an Investment Adviser does not imply any specific level of skill or training.  CFPFD only transacts business in states or jurisdictions in which it is registered or exempt from registration.  A copy of CFPFD's current disclosure brochure is available through the Securities and Exchange Commission's Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.

The opinions and analyses described are subject to change at any time without notice.  Any information is considered general and is not intended to provide any specific advice or recommendations.  Your use of the information is at your sole risk.  You should consult with your financial advisor, attorney, tax advisor, insurance agent, or other professional advisor before taking action on any information or implementing any strategy.




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