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A nest egg can help you save for future goals, such as buying a home or for your retirement. Building a nest egg is an important part of a financial strategy, as it can help you cover any emergency costs that might crop up and allow you to become financially secure.

A financial nest egg requires some planning and commitment. In general, the sooner you start building a nest egg, the better.

What Is a Nest Egg?

A financial nest egg is a large amount of money that an individual saves to meet financial goals. Usually, a nest egg focuses on longer-term goals such as saving for retirement, paying for a child’s college education, or buying a home.

A nest egg could also help you handle emergency costs, such as unexpected medical bills, pricey home fixes, or car repairs. There is no one specific thing a nest egg is for, as it depends on each person’s unique aims and circumstances.

Understanding How a Nest Egg Works

To successfully build a nest egg, there are a few factors to keep in mind.

•  You have to have a plan. Unlike saving for short-term goals, building a nest egg takes time and you need a strategy to make it happen. A common technique is to save a certain amount of money each month or each week.

•  You need a place to stash your savings. This may sound obvious, but in order to save money every week or month, you have to put it in a savings account of some sort, such as a high-yield savings account. If you “save” the money in your checking account, you may end up spending it instead.

•  Make it untouchable. In order for your nest egg to grow so that you can reach your savings goals by a certain age, you have to protect it. Consider it hands-off.

How Much Money Should Be in Your Nest Egg?

There is no one correct amount a nest egg should be. The amount is different for each person, depending on their needs and what they are saving for. If you’re using your nest egg for a down payment on a house, for instance, you’ll likely need less money than if you are planning to use your nest egg for retirement.

If your nest egg is for retirement, one common rule of thumb is to save 80% of your annual income. However, the exact amount is different for each person, depending on the type of lifestyle they want to have in retirement. For instance, someone who plans to travel a lot may want to save 90% or more of their annual income.

What Are Nest Eggs Used for?

Nest eggs are typically used for future financial goals, such as retirement, a child’s education, or buying a house.

A nest egg can also be used to cover emergency costs, such as expensive home repairs, medical bills, or car repairs.

5 Steps to Building a Nest Egg

1. Set a SMART Financial Goal

The SMART goal technique is a popular method for setting goals, including financial ones. The SMART method calls for goals to be (S)pecific, (M)easurable, (A)chievable, (R)elevant, and (T)ime bound.

With this approach, it’s not enough to say, “I want to learn how to build a nest egg for emergencies.” The SMART goal technique requires you to walk through each step:

•  Be Specific: For example, if you’re saving for emergencies, target an amount to save in an emergency fund. One rule of thumb is to save at least three to six months’ worth of living expenses, in case of a crisis like an illness or a job layoff.

•  Make it Measurable and Achievable: Once you decide on the amount that’s your target goal, your next task is to figure out how to reach that goal. If you want to save money from your salary to reach a total of, say, $3,000 for your emergency fund, you could put $200 a month into a high-yield savings account until you reach your goal. Be sure to create a plan that’s measurable and doable for your situation.

•  Keep it Relevant and Time-bound: The last actions in the SMART method are to keep your goal a priority, and to adhere to a set timeframe for achieving it. For example, if you commit to saving $200 per month for 15 months in order to have an emergency fund of $3,000, that means you can’t suddenly earmark that monthly $200 for something else.

2. Create a Budget

Saving money takes time and focus. Making a budget is a way to help you save the amount you need steadily over time. There are numerous budgeting methods, so find one that works for you as you build up your nest egg.

You could try the 50-30-20 plan, for instance, in which you allocate 50% of your money to musts like rent, utility payment, groceries, and so on; 30% to wants, such as eating out or going to the movies; and 20% to savings. You could also explore zero-based budgeting. Try out your selected method to ensure that you can live with it.

3. Pay Off Debt

Debt can be a major obstacle to building a nest egg, especially if it’s high-interest debt like credit card debt. If you’re struggling to pay down debt, making it a priority to repay what you owe can help save you money on interest and also reduce financial stress.

Adding debt payments into your monthly budget is one way to help keep your debt repayment plan on track. In addition, there are specific methods you can use to repay debt.

Debt Repayment Strategies

These are two popular debt repayment strategies you might want to explore — the avalanche method and the snowball method.

The avalanche method focuses on paying off the debt with the highest interest rate as fast as possible. You continue to pay the minimum monthly amount on all your other debt, but you direct any extra money you have the highest-interest debt. This method can generally save you the most money in the long run.

The other option is the snowball method, which focuses on paying off the smallest debt first while making minimum payments on all other debts. When one debt is paid off, you take the payment that went toward that debt and add it to the next-smallest one, “snowballing” as you go.

This method can be more psychologically motivating, as it’s easier and faster to eliminate smaller debts first, but it can cost more in interest over time, especially if the larger debts have higher interest rates.

Finally if you’re having trouble paying down a certain debt, like a credit card or medical bill, it might be worth calling the lender. In some cases, lenders may work with individuals to create a manageable debt repayment plan. Call the lender before the debt gets out of control.

4. Make Saving Automatic

Automating your savings simplifies the act of saving with automatic transfers of money from your paycheck directly into your savings account. It can be a steady way to build your savings over time, since you don’t even have to think about it or remember to do it.

Not only that, because the money isn’t hitting your checking account, you won’t be tempted to spend it.

Set up automatic transfers to your online bank account every week, or every month. While you’re at it, set up automatic payments for the bills you owe. Don’t assume you can make progress with good intentions alone. Technology can be your friend, so use it!

5. Start Investing in Your Nest Egg

In addition to a savings account, you might also want to explore options like putting some of your money in a money market account or certificate of deposit (CD). Both types of accounts tend to earn higher interest rates than traditional savings accounts.

CDs come with a fixed term length and a fixed maturity date, which can range from months to years. You generally need to leave the money in a CD untouched for the length of the term, or you’ll owe an early withdrawal fee. With a money market account, you can access your money at any time, though there may be some restrictions.

To help build retirement savings over time, consider participating in your employer’s 401(k). Some employers offer matching funds — if you can, contribute enough to your to get the employer match, since it is essentially free money.

The Power of Compounding Interest

When saving money to build a nest egg in certain savings vehicles such as a high-yield savings account or a money market account, the power of compound interest can work to your advantage.

Here’s how it works: Compound interest is earned on the initial principal in a savings vehicle and the interest that accrues on that principal. So, for instance, if you have $500 in a savings account and you earn $5 in interest, the $5 is added to the principal and you then earn interest on the new, bigger amount. Compound interest can help your savings grow. Use a compound interest calculator to see this in action.

Why Having a Nest Egg Is Important

A financial nest egg can help you save for retirement and/or achieve certain financial goals, such as buying a home or paying for your child’s education. By building a nest egg as early as you can, ideally starting in your 20s or 30s, and contributing to it regularly, the more time your money will potentially have to grow.

The Takeaway

Building a nest egg starts with setting financial goals and then creating a specific plan of action to reach them. Using a method like the SMART goal technique, it’s possible to build a nest egg for an emergency fund, a down payment on a house, or retirement. You can use a budgeting system to help stay on track, and automate your savings to make saving simpler.

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

What is a financial nest egg?

A financial nest egg is a sum of money you save or invest to meet a certain financial goal. A nest egg typically focuses on future milestones, such as retirement, paying for a child’s college education, or buying a home.

How much money is a nest egg?

There is no one specific amount of money a nest egg should be. The amount is different for each person, depending on their needs and what they’re using the nest egg for. For instance, if a nest egg is for retirement, some financial professionals suggest saving at least 80% percent of your annual income.

Why is it important to have a nest egg?

A nest egg allows you to save a substantial amount of money for a financial goal, such as retirement or your child’s education, for instance. By starting to build a nest egg as early as you can, the more time your money has to grow.

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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.

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SOBNK-Q325-111

Money transfers are part of everyday life. Maybe you use a peer-to-peer payment app to reimburse friends for dinners, pay your cell phone bill online, or tap your digital wallet for coffee.

What you may not do often is send money across borders. And when the need arises, international money transfers (also known as global remittances) can feel intimidating. Whether you’re helping family abroad, purchasing goods from overseas, or funding education in a foreign country, it’s important to use a secure and reliable service.

Below, we explore how to safely send money internationally, along with red flags to watch out for along the way.

10 Tips for Safely Sending Money Internationally

Sending money across borders is becoming increasingly easier and faster to do through banks and other money transfer service providers. But there are still risks involved — from security concerns to remittance scams to hidden transfer fees. Here’s how to make the process as safe and seamless as possible.

1. Vet Your Transfer Service Like a Detective

For one of the most secure options, and particularly for larger amounts, you may start with your own financial institution to see what options they provide for international transfers using your bank account. Some banks may offer wire transfer services or app-based international transfers.

If you can’t use your bank, make sure you thoroughly vet any provider you’re considering. Check to make sure the company is licensed and regulated by financial authorities in your country. Legitimate services should make this information easy to access and verify.

It’s also a good idea to research customer reviews and ratings for the company. Look for patterns, such as repeated complaints about transfer delays, poor customer service, or surprise fees.

2. Look Beyond the Transfer Fee

Banks and money transfer services typically charge a transfer fee, which may be a flat fee or a small percentage of the amount you send. But this fee is only part of the story. It’s also important to look at the exchange rate the service is offering you.

Banks and providers often add a markup to the ​​mid-market exchange rate, which is the rate that big banks use when they’re trading foreign currencies with one another (and often considered the “real” exchange rate).^[1] For example, a bank will often add 3% to 6% to mid-market rate, which considerably adds to your costs.

The best way to compare global remittance providers is to look at both fees and exchange rates, and exactly how much the recipient will receive when all is said and done. A service with low or no upfront fees but a high rate markup could cost more than one that charges a transfer fee. Fortunately, federal law requires international transfer companies to be transparent about all fees (including the exchange rate that applies to the transfer) before you pay.

3. Triple-Check Every Recipient Detail

When sending money internationally, small errors can lead to major big headaches. A single wrong digit in an account number or misspelled name can delay your transfer — or worse, send it to the wrong person entirely.

Before confirming a wire transfer, carefully review:

•   The recipient’s full name, address, and phone number

•   The recipient’s bank name, account number/IBAN, and routing number or SWIFT/BIC code

•   Account type

•   Transfer amount

•   Your full name, address, and phone number

While this may seem tedious, spending a few extra minutes verifying details is likely to be a lot less painful than trying to reverse a misdirected transfer.

4. Secure Your Account With Digital Locks

When using any kind of payment service, it’s critical to protect your personal and financial details from being intercepted by hackers or unauthorized parties. To guard against bank fraud, be sure to:

•   Use a strong password: This is the initial key to your account. To make sure scammers don’t get through the door, use a strong, long password and make it unique for each account. Consider using a password manager to keep track of them.

•   Enable two-factor authentication (2FA): This adds another layer of security by requiring a second verification step, such as a code sent to your phone or email or a fingerprint scan. Even if a fraudster has your email and password, it would be difficult for them to get through the door thanks to your digital deadbolt.

•   Set up account alerts: Many transfer services offer notification for login and transactions. These account alerts give you real-time updates and can help you spot unauthorized activity quickly.

5. Learn to Spot the Red Flags of a Scam

Fraudsters often use wire transfers to scam people because they offer a fast, irreversible, and difficult-to-trace method for sending money internationally. This allows them to quickly collect funds and disappear before victims realize they’ve been defrauded.

To protect yourself from wire transfer scams, the Federal Trade Commission (FTC) cautions against sending money to:^[2]

•   Anyone you’ve never met in person

•   Someone claiming to be from a U.S. government agency (the government won’t ever request payment this way).

•   Anyone who makes an urgent, high-pressure request for payment.

•   Anyone who says a wire transfer is the only way to pay.

•   Someone who tries to sell you something over the phone (it’s illegal for a telemarketer to ask you to pay with a wire transfer).

6. If It Sounds Too Good to Be True, It Is

Sometimes transfer services use marketing tricks to lure customers. Some might advertise “zero fees” but significantly inflate exchange rates. Others might claim “instant transfers” when funds typically take days to clear.

If you encounter a deal that seems unusually generous, proceed with caution. Ask yourself: How is the company making money? Reputable providers prioritize transparency regarding fees, rate markups, and transfers times, making it easy to compare service apples to apples.

7. Use Traceable, Digital Methods

While using an international money transfer isn’t entirely risk-free, sending cash in the mail or through a courier is far riskier. If that envelope is lost or intercepted, the money is gone and there’s no way to get it back. Mailing a check isn’t fail-safe either. If it gets lost or stolen, it could lead to delays and, potentially, check fraud.

By contrast, banks and licensed money transfer companies provide tracking options to monitor your transaction. Once you send money, you’ll receive a confirmation number or tracking code. You can typically enter this on the provider’s website or app to see the transfer’s status in real time. Some services also send an email or phone alert when funds are received. Having a reference number can help resolve any issues that come up.

8. Keep Meticulous Records

It’s a good idea to document everything when sending money abroad. Make note of any confirmation codes, save your receipts, and screenshot all correspondences, as well as advertised exchange rates and fees. These records could come in handy if there is any need for dispute later.

9. Know Whom to Contact If Something Goes Wrong

If a transfer fails or seems suspicious, knowing your next step is key. Every provider should clearly state their dispute resolution process and provide multiple support channels (such as phone, chat, or email).

If you make an error or you realize you sent money to a scammer, you’ll want to contact your bank or the money transfer service immediately to explain what happened. If it’s early enough, they may be able to correct or reverse the transfer. If you’re the victim of any kind of money wiring scam, you should also report the experience to the FTC.

10. Send a Small Test Transfer First

When using a new service or sending money to a new recipient, consider sending a small test transfer before committing to a larger sum. This allows you to:

•  Verify that the service works as expected

•  Ensure recipient details are correct

•  Confirm the timeline for delivery

•  Check the actual exchange rate applied

While you may pay a small fee, a test run provides reassurance and minimizes the risk of costly errors. Once you’ve confirmed everything works smoothly, you can proceed with confidence on larger transfers.

The Takeaway

Sending money internationally can be stressful, but as long as you use a trusted, regulated, well-reviewed service — and make sure you get all the information correct when submitting the transfer — you should be fine. Just remember: Money transfers are a favorite tactic of fraudsters. Never send money to someone you don’t know.

Being proactive and approaching each transfer with caution and care helps ensure that your money reaches the right hands, for the right purpose, every time.

SoFi Checking and Savings members can now send money to 30+ countries, including Mexico, India, Brazil, and more. Plus, make three international money transfers by 3/31/26 to earn $30 in rewards points.

SoFi worldwide money transfers are a fast, affordable, and simple way to transfer money to loved ones abroad — directly from the SoFi app.

FAQ

What’s the single-most important security feature to look for in a transfer app?

One of the most important security features to look for in a transfer app is two-factor authentication (2FA). This adds an extra layer of protection, such as requiring you to enter a code sent to your phone or a fingerprint scan. Even if your password is stolen, hackers can’t easily access your account without the second verification step. This significantly reduces the risk of unauthorized transactions.

What should I do immediately if I think I’ve been scammed?

If you think you’ve been scammed, contact your bank or money transfer provider immediately to report the fraud and request a hold or reversal if possible. Next, you’ll want to change your account passwords and enable two-factor authentication (if you haven’t already). It’s also a good idea to file a report with the Federal Trade Commission.

Is it safe to save my credit card information in a money transfer app?

If the money transfer app is reputable and regulated, storing your credit card information in your account is reasonably safe. However, no system is foolproof, as data breaches can still potentially occur. In general, it’s a good idea to limit storing your payment details online to reduce potential exposure.

How can I verify a transfer request from a family member is legitimate?

Scammers often impersonate family members, so it’s crucial to confirm any suspicious transfer requests via a separate channel, not through the message you received. To make sure you aren’t being scammed, call your loved one using a trusted phone number or video call before you send any money. If that’s not possible, ask the person making the request a very specific question only your loved one would know the answer to.

About the author

Timothy Moore

Timothy Moore is a personal finance writer and editor and a Certified Financial Education Instructor. His work has been featured on sites such as USA Today, Forbes, Business Insider, LendingTree, LendEDU, and Time. Read full bio.

Photo Credit: iStock/Dilok Klaisataporn

SOBNK-Q325-115

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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