We described previously how the Income Driven Plans was calculated. Borrower’s often times have a problem with this because they say it does not take their bills into consideration. As we have previously discussed it is based on a very black and white formula.
While it is true that car,house, etc payments are not taken into account, if it was the formula would probably be adjusted up instead of just using straight income (which many government programs are based on). Also it would be a logistical nightmare to have to run all those different variables for each borrower.
That was the why, so here is the what. Your Income is based on gross income based on your tax return or a month’s worth of paychecks depending on what is more accurate. Whenever you are able to a tax return is best because it helps avoid things that would raise your AGI such as 401k disbursements or better reflect how a season job affects your income. However if you have recently went from a higher to a lower income job, then pay stubs may better help you overall.