Income-driven repayment, explained (and why the balance can grow)

A standard loan calculator answers “how much do I pay each month?” by working backward from a fixed term. Income-driven repayment (IDR in the US; income-contingent repayment elsewhere) flips that: the payment is calculated from your income, and the term is whatever it takes.

The core formula

Every income-driven scheme, regardless of country, boils down to the same shape:

payment = max(0, income − threshold) × rate%

If your income is at or below the threshold, you pay nothing that period. If it’s above, you pay a fixed percentage of the amount above the threshold — not a percentage of your whole income, and not related to your loan balance at all.

Why the balance can grow

This is the part flat-rate calculators can’t show, and the part most people find counterintuitive: your payment and the interest accruing on your balance are two completely unrelated numbers. If your income-based payment is smaller than the interest accruing that month, the difference is added to your balance instead of paid off — this is called negative amortization, and it’s a normal, expected feature of these plans, not a sign something is wrong. It’s most common early in a career, when income is lowest relative to the original balance.

The Income-Driven Repayment Calculator flags every year this happens, so you can see it coming instead of being surprised by a balance that’s higher after five years of payments than when you started.

What happens at the end

Every income-driven scheme has some form of end state after a set number of years:

• Full payoff — if your income (and therefore your payments) grew enough relative to the balance, you may pay it off before the forgiveness term is up, exactly like a standard loan.
• Forgiveness / write-off — if a balance remains at the end of the term, it’s cleared. In the US this may have tax implications depending on current law and plan; in the UK and similar systems it’s typically a straightforward write-off with no separate tax event. This changes with policy and is not something a generic calculator should assert as fact — confirm the current treatment with your loan servicer or tax authority before assuming either outcome.

Should you choose income-driven or standard repayment?

If your loan qualifies for both, the honest tradeoff is: income-driven caps your monthly payment relative to what you earn, at the cost of potentially paying more total interest (or needing forgiveness) compared to paying off a standard loan aggressively. Run both calculators with your real numbers and compare total paid, not just the monthly figure — the monthly payment alone can make a much more expensive path look like the better deal.