Federal student loan payments can be calculated in two fundamentally different ways. One works from the balance, the other from the borrower's income, and the choice changes everything downstream.
Standard plans amortize the balance over a fixed term
The default approach treats the loan like any other instalment debt. The balance, the rate and the term produce a level payment that clears the debt on schedule.
The payment is therefore a function of what was borrowed. A larger balance produces a larger payment regardless of what the borrower earns.
This is the cheapest route in total interest, because the term is short and no balance is carried longer than necessary.
Income-driven plans invert the calculation
An income-driven plan starts from discretionary income, defined as earnings above a threshold tied to household size and a poverty measure.
A set share of that figure becomes the annual payment, divided into monthly instalments. The balance owed does not enter the formula at all.
Two borrowers with very different balances and identical incomes therefore pay the same amount, which is the intended effect of the design.
Recertification is what keeps the payment accurate
Because the payment depends on income, it must be recalculated annually using updated earnings and family size information.
Missing the recertification deadline generally reverts the borrower to a standard payment, which can be a large and sudden increase.
Income changes between recertifications can usually be reported early, which matters for anyone whose earnings fall mid-year.
Negative amortization appears when the payment is small
If the calculated payment is less than the interest accruing, the balance grows even though the borrower is paying on time every month.
Some plans limit this by subsidising part of the unpaid interest, and the details of that subsidy differ substantially between plans.
Borrowers on these plans should expect the balance to be a poor measure of progress, since the plan is oriented towards the payment rather than the payoff.
Forgiveness is the endpoint the design assumes
Income-driven plans end in cancellation of any remaining balance after a long qualifying period of payments, which is what makes an unpayable balance tolerable.
Public service programmes shorten that period for borrowers in qualifying employment, subject to strict rules about which payments and which employers count.
Programme terms are set by legislation and regulation and have changed repeatedly, so the specifics that apply to any borrower depend on when they borrowed and which plan they entered.