TL;DR: How does this calculator work?
- This tool estimates Discretionary income
As defined by federal student loan regulationsand not the money remaining in the personal budget. - Discretionary income = Your AGI – (150% or 225% of federal poverty guidelines) Depending on the IDR plan.
- IBR and PAYE are used 150%. The ICR uses 100% of your discretionary income. The SAVE Savings Plan is no longer a valid repayment plan, but has used 225% of your discretionary income.
- for you Pay IDR monthly Then it is a percentage of that number (5%-20%, depending on the plan).
Discretionary income It is the main number used to calculate your payment when you apply for an income-driven repayment plan (IBR, PAYE, ICR). As such, it’s important to know what your discretionary income is, how it works, and how it could affect your student loans.
It is important to note that the new RAP does not use discretionary income, but rather uses adjusted gross income (AGI) directly. You can find the Payment Assistance Plan Calculator here.
We’ve put together these calculators to help you understand your discretionary income. You can also learn more about this at StudentAid.gov.
Calculate your discretionary income
We have provided the following estimated income calculator. You can also do the math yourself to calculate your discretionary income. The formula is very simple:
Household Income (AGI) – 150% of the Federal Poverty Guideline = Discretionary Income
If you are calculating your ICR discretionary income:
Household Income (AGI) – 100% of Federal Poverty Guidelines = Discretionary Income
Check out the calculator below:
What is discretionary income?
Discretionary income is an idea of how much money you have left over after paying for your “essential” expenses. Necessary expenses are items such as housing, transportation, utilities, and food. Discretionary expenses are what’s left over – what you can use to buy “unnecessary things.”
Of course, these are government calculations and ideas. It is based on the level of poverty in the United States, which some argue is too low to live with.
In theory, you can control your discretionary income much more than your necessary expenses. This is the “latte” factor that many financial experts talk about.
The problem with discretionary income is that many find it to be much higher than they expect — causing their student loan payments to be higher than they would like.
How discretionary income affects your student loans
Discretionary income is the first factor in calculating your payment for an income-driven repayment plan. These are what we call “secret student loan forgiveness programs,” because along with income-based repayment, you could potentially get loan forgiveness after the repayment period.
This is where the account comes into play. Depending on your payment plan, your monthly loan payment will be capped at a certain percentage of your discretionary income:
Estimated income percentage | |
|---|---|
Income Based Repayment (IBR) | |
Income Conditional Repayment (ICR) |
Important note: The SAVE Student Loan Repayment Plan is no longer an option. It has been banned by the courts and is being phased out. The new Repayment Assistance Plan (RAP) goes into effect in July 2026, and is not dependent on discretionary income.
Remember, your discretionary income is calculated on an annual basis. So, to figure out your student loan payment each month, you take that number, multiply it by the percentage mentioned above, and then divide it by 12 (for each month).
As a simple example, let’s say your annual discretionary income is $12,000 and you are on PAYE. This means that 10% of your discretionary income will be your student loan payment. $12,000 * 10% = $1,200 per year. So, your monthly payment will be $100.
How to reduce your student loan payment
Many borrowers still find that committing to an income-driven repayment plan is difficult. There may not be much money left after paying off your student loan. As such, you may still be considering ways to reduce your student loan payments.
First, make sure your income and family size are correct. If your income changes during the year, be sure to recertify your current income so your payment is accurate.
Second, realize that income-driven repayment plans are your “best” option for a low monthly student loan payment.
In some cases, it may make sense to refinance your federal student loan and take out a low-interest private student loan. We break down our list of the best places to refinance your student loans here, and you can see in minutes if it makes sense.
Final thoughts
Discretionary income plays an important role in your student loan debt. Use our discretionary income calculator to find out your discretionary income, so you can accurately evaluate your student loan payments.
Remember, if you have any questions, you can contact your student loan servicer, or go online to StudentAid.gov.
If you’re not quite sure where to start or what to do, consider hiring a financial planner to help you with your student loans. We recommend using our Student Loan Planner to help you create a solid financial plan for your student loan debt. Payment Student loan scheme here.
