Does Having a Child Reduce Student Loan Payments? It Can

Quick Facts

• Having a child can reduce your student loan payments if you’re on an income-driven repaymentIncome-Driven Repayment (IDR)A category of federal student loan repayment plans that calculate monthly payments based on income and family size rather than loan balance. Any remaining balance can be forgiven after 20–25 years of qualifying payments. plan by increasing your family size and lowering your discretionary incomeDiscretionary IncomeFor federal income-driven repayment plans, a borrower's adjusted gross income minus a set percentage of the federal poverty guideline for their family size. Monthly IDR payments are calculated as a percentage of this amount..
• IDR plans, such as IBR, PAYE, REPAYE, and ICR, calculate your monthly payments based on your adjusted gross incomeAdjusted Gross Income (AGI)A borrower's total taxable income minus specific deductions, as reported on a federal tax return. Federal income-driven repayment payments are generally calculated using AGI., family size, and the poverty guidelinesPoverty GuidelinesAnnual income thresholds published by the U.S. Department of Health and Human Services, used in federal student loan programs to calculate discretionary income and determine eligibility for certain repayment benefits. for your state.
• As soon as you find out you’re pregnant, you can recertify your IDR plan to benefit from lower monthly payments. Simply submit updated income and family size information to your loan servicerLoan ServicerThe company that manages a borrower's federal student loan account, processes payments, and handles applications for repayment plans, deferment, forbearance, and forgiveness on behalf of the U.S. Department of Education..

Does Having a Child Lower Student Loan Payments

As a student loan borrower, you might wonder if having a child can help reduce your monthly payments. The answer is yes, but only if you’re on an income-driven repayment plan.

In this article, we’ll explore how having a child can affect your student loan payments under IDR plans and provide actionable advice on how to recertify your plan to take advantage of lower payments.

We’ll also discuss the long-term financial implications and emotional considerations of growing your family while managing student debt.

Related: Biden Student Loan Forgiveness Update

How Having a Child Lowers IDR Payments

What it is: Income-driven repayment plans help make student loan payments more affordable by calculating them based on income and family size.

How it works: IDR plans determine your monthly payments by taking a percentage of your discretionary income, the difference between your adjusted gross income and 150 to 225% of the poverty guideline for your family size and state of residence.

As your family grows, your discretionary income decreases, resulting in lower monthly payments.

Who qualifies: Borrowers with eligible federal student loans, such as Direct Loans, FFEL Loans (if combined into a Direct Consolidation Loan), and Perkins Loans (if consolidated), can qualify for IDR plans.

How to apply: To enroll in an IDR plan, submit an application through the Federal Student AidFederal Student Aid (FSA)The office within the U.S. Department of Education that manages federal grants, work-study, and student loans. It runs the FAFSA, the StudentAid.gov website, and oversees the federal loan servicers. website or your loan servicer. You’ll need to provide documentation of your income and family size.

Deadline: You can apply for an IDR plan anytime during your repayment period. However, you must recertify your income and family size annually to remain on the plan and maintain your reduced payments.

The main IDR plans – SAVE, IBR, PAYEPay As You Earn (PAYE)A federal income-driven repayment plan that caps monthly payments at 10% of discretionary income and forgives remaining debt after 20 years. It is only available to borrowers who took out their first federal loans on or after October 1, 2007., and ICRIncome-Contingent Repayment (ICR)The oldest federal income-driven repayment plan, with payments generally set at 20% of discretionary income or a fixed 12-year amount, whichever is lower. It is the only IDR plan available to Parent PLUS borrowers after consolidation. – consider your family size when calculating your monthly payments. However, they have different eligibility criteria, repayment terms, and potential loan forgiveness options.

For example, let’s say a married couple with a combined AGI of $100,000 has a baby. Before the child, their monthly SAVESAVE Plan (SAVE)The Saving on a Valuable Education Plan, a federal income-driven repayment plan introduced in 2023 to replace REPAYE. Its implementation has been subject to ongoing litigation, and enrolled borrowers have faced court-ordered forbearance periods. payment was $415 based on a family size of two. After learning they’re pregnant, they recertify their income and family size. Their new monthly payment drops to $290 due to the increased family size (now three) and the resulting decrease in discretionary income.

Related: How to Lower Parent PLUS Loan Payments

When and How to Recertify Your IDR Plan When Having a Child

What it is: Recertifying your IDR plan involves updating your income and family size information to ensure your monthly payment accurately reflects your current financial situation.

When to recertify: You must recertify your IDR plan annually, even if there’s been no change in your income or family size. Your loan servicer will tell you when to recertify, usually a few months before the deadline. However, if you experience a significant change in income or family size, such as having a child, you can recertify earlier to adjust your monthly payment.

How to recertify: Submit an application through the Federal Student Aid website or your loan servicer to recertify your IDR plan. You must provide your most recent tax return or alternative income documentation and proof of your updated family size.

Related: What is a Significant Change in Income?

Benefits of early recertification:

• Lower monthly payments: Recertifying when your family size increases can help you take advantage of reduced monthly payments, making it easier to manage your finances with the added expenses of raising a child.
• More affordable payments: Adjusting your monthly payment to reflect your new family size can help you better balance your student loan obligations with other financial priorities, such as childcare, healthcare, and future savings.

Keep in mind that when you recertify your IDR plan, your new monthly payment will be based on your updated income and family size. If your income has gone up significantly, your monthly payment may not go down as much as you’d expect, even with the addition of a child.

Long-term Financial Implications and Considerations

While having a child can lead to lower monthly student loan payments under an IDR plan, consider the financial implications and emotional factors of growing your family.

Will More Children Further Reduce Your Student Loan Payments?

Yes, having more children can further reduce your IDR student loan payments by increasing your family size and lowering your discretionary income. However, the long-term costs of raising more children often outweigh the short-term savings on student loans, making it an inadvisable strategy for managing student debt.

• Lower IDR payments: Each additional child can further reduce your IDR payments by increasing your family size and potentially decreasing your discretionary income.
• Tax benefits: More children may also lead to more tax benefits, such as child tax credits and dependent exemptions.
• Increased long-term costs: However, the long-term costs of raising more children often outweigh the short-term savings on student loan payments.

Increased expenses:

• Childcare costs: Daycare, babysitters, or nannies for multiple children can significantly add to your monthly expenses.
• Healthcare expenses: Prenatal care, delivery, and pediatric visits for each child can affect your budget, even with insurance.
• Larger living space: As your family grows, you may need a bigger home or car, leading to higher rent or mortgage payments and increased transportation costs.
• Education expenses: Saving for multiple children’s future education, such as private school or college tuition, can strain your budget.

Impact on other financial goals:

• Retirement savings: With more expenses, you may have less money to contribute to your retirement accounts.
• Emergency fund: Building and maintaining an emergency fund can be more challenging with the added costs of raising multiple children.
• Debt repayment: Paying off other debts, such as credit card balances or car loans, may take longer with the increased expenses of a growing family.

Emotional and lifestyle considerations:

• Work-life balance: Balancing the demands of parenthood with your career can be challenging, potentially affecting your job performance or opportunities for advancement.
• Relationship dynamics: More children can strain your relationship with your partner as you navigate parenting challenges together.
• Personal well-being: Caring for multiple children can be emotionally and physically taxing, leaving less time for self-care and personal pursuits.

Consider alternative strategies for managing your student debt, such as pursuing loan forgiveness programs or exploring income-driven repayment plans that offer loan forgiveness after a certain period.

Which IDR Plan Is Best for Growing Families?

When choosing an income-driven repayment (IDR) plan as a parent with student loans, understand the differences between the plans and how they can affect your monthly payments and long-term repayment.

Eligibility requirements:

• SAVE Plan: All borrowers with eligible federal student loans are eligible.
• PAYE Plan: You must be a new borrower on or after Oct. 1, 2007, and have received a Direct LoanDirect LoanA federal student loan made directly by the U.S. Department of Education under the William D. Ford Federal Direct Loan Program. Most federal student loans issued since 2010 are Direct Loans. disbursement on or after Oct. 1, 2011.
• IBRIncome-Based Repayment (IBR)A federal income-driven repayment plan that caps monthly payments at 10% or 15% of discretionary income, depending on when the loans were taken out. Remaining debt is forgiven after 20 or 25 years of qualifying payments. Plan: You must have high student loan debt relative to your income.
• ICR Plan: All borrowers with eligible federal student loans are eligible.

Repayment terms:

• SAVE Plan: 10% of your discretionary income; repayment period is 20 years for undergraduate loans and 25 years for graduate loans.
• PAYE Plan: 10% of your discretionary income; repayment period is 20 years.
• IBR Plan: 10% of your discretionary income (if you’re a new borrower on or after July 1, 2014) or 15% of your discretionary income (if you’re not a new borrower on or after July 1, 2014); repayment period is 20 years (if you’re a new borrower on or after July 1, 2014) or 25 years (if you’re not a new borrower on or after July 1, 2014).
• ICR Plan: The lesser of 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income; the repayment period is 25 years.

Best IDR plans for growing families:

• SAVE and PAYE plans: These plans generally offer the lowest monthly payments, making them attractive options for parents with growing families. However, you may pay more interest over the life of the loan.
• IBR plan: If you’re a new borrower on or after July 1, 2014, the IBR plan offers similar benefits to the SAVE and PAYE plans. If you’re not a new borrower, the IBR plan may result in higher monthly

Private Student Loans and Having a Child

If you have private student loans, your options for reducing payments after having a child may be limited.

Some lenders offer deferment or forbearance for financial hardship, but approval isn’t guaranteed. If approved, you might receive a forbearance period of 2-3 months, possibly extendable up to 9 months. However, interest will continue to accrue during forbearance, increasing your overall loan balance.

Before pursuing forbearance, consider the long-term financial implications and explore alternatives like refinancingRefinancingTaking out a new private loan to pay off one or more existing student loans, usually to lower the interest rate or change the repayment term. Refinancing federal loans into a private loan eliminates federal benefits like IDR and PSLF. for a lower interest rate or better repayment terms

If you’re about your repayment options, consult your lender’s customer service or a student loan expert for personalized advice based on your financial situation.

Related: How to Lower Private Student Loan Payments

Bottom Line

Having a child can lower your student loan payments under IDR plans, but consider the long-term financial and emotional impacts.

Recertify annually, choose the best plan for your situation and explore alternative repayment strategies. Making family planning decisions based on your values and goals, not just loan payments, is important.

Book a 1:1 call with one of our student loan experts for personalized guidance to balance your family’s needs with your financial well-being.

Related:

• Is It Too Late for Student Loan Forgiveness?