If you’re paying in an income-driven repayment plan for your federal student loans, here’s a term you need to know: Adjusted Gross Income.

What is Adjusted Gross Income?

Adjusted Gross Income, or AGI, is the all-important line item on your tax return. According to the IRS, AGI represents your total income minus certain adjustments given by Uncle Sam. But we don’t have to get too technical at this point; basically what you need to know is you can find your AGI on your most recent tax return.

Why is Adjusted Gross Income Important for Federal Student Loans?

AGI plays a huge role in the calculation of your monthly payment for federal student loans if you are in an income-driven repayment plan (PAYE, REPAYE, IBR, ICR). AGI isn’t the only factor in the calculation of your monthly payment, but it certainly is a big one.

Borrowers crushed by student loans can engage in responsible planning of their AGI to bring their payments under control. In some cases, they can even accomplish two planning goals at once.

Let me give an example. Many borrowers are able to lower their AGI through planning for retirement or medical emergencies. A family could increase contributions to a pre-tax retirement account or a Health Savings Account. Unfortunately, if someone is unaware of these opportunities they may be at a double disadvantage: paying a high monthly student loan payment and missing out on tax-favored vehicles to accomplish their long-term goals. This situation is not ideal.

How Can I Make Sure I’m on the Right Track?

The only way to make sure you’re on the right track towards paying your student loans the smart way is to speak with a student loan planning specialist. Gradmetrics can help. Also, it’s important to work with the other advisors in your life – CPA, financial planner, CERTIFIED FINANCIAL PLANNER(TM), lawyer, etc. – to make sure you are taking advantage of all the AGI lowering strategies that fit within your overall financial goals.