TL;DR: How This Calculator Works
- This tool estimates your discretionary income as defined by federal student-loan regulations, not personal-budget leftover money.
- Discretionary income = Your AGI – (150% or 225% of the federal poverty guideline) depending on the IDR plan.
- IBR and PAYE use 150%. ICR uses 100% of your discretionary income. SAVE is no longer a valid repayment plan, but used 225% of your discretionary income.
- Your monthly IDR payment is then a percentage of that number (5%–20%, depending on the plan).
Discretionary income is the key 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 can impact your student loans.
It's important to note that the new RAP plan does NOT use discretionary income, but directly uses your Adjusted Gross Income (AGI). You can find the Repayment Assistance Plan Calculator here.
We've put together these calculators to help you understand what your discretionary income is. You can also learn more about this at StudentAid.gov.
Calculate Your Discretionary Income
We have provided the following discretionary income calculator. You can also do the math yourself to calculate your discretionary income. The formula is pretty simple:
Household Income (AGI) - 150% Of Federal Poverty Guideline = Discretionary Income
If you're calculating your ICR discretionary income:
Household Income (AGI) - 100% Of Federal Poverty Guideline = Discretionary Income
Check out the calculator below:
Student Loan Discretionary Income Calculator
Results:
What Is Discretionary Income?
Discretionary income is this idea of the money you have left after paying your "necessary" expenses. Necessary expenses are items like housing, transportation, utilities, and food. Discretionary expenses is what's left over - what you can use to buy "non-essentials".
Of course, these are government calculations and ideas. It's based on the US Poverty Level, which some argue is very low to being with.
Theoretically, you can control your discretionary income much more than your necessary expenses. This is the "latte" factor that many financial pundits talk about.
The problem with discretionary income is that many find it to be a lot higher than they expect - causing their student loan payments to be higher than they'd like.
How Discretionary Income Impacts Your Student Loans
Discretionary income is the number one factor in calculating your payment for your income-driven repayment plan. These are what we call the "Secret Student Loan Forgiveness Programs", because along with having an income-driven repayment, you can potentially get loan forgiveness after the repayment term.
Here's where the calculation comes into play. Depending on your payment plan, your monthly loan payment will be capped at a certain percentage of your discretionary income:
Repayment Plan | Discretionary Income Percentage |
|---|---|
Income-Based Repayment (IBR) | 10% or 15% |
Pay As You Earn (PAYE) | 10% |
SAVE (Expired) | 5% |
Income Contingent Repayment (ICR) | 20% |
Important Note: The SAVE student loan repayment plan is no longer an option. It's blocked by the courts and being phased out. The new Repayment Assistance Plan (RAP) goes into effect in July 2026, and is not based on discretionary income.
Remember, your discretionary income is calculated on an annual basis. So, to figure out your student loan payment each month, you would take that number, multiple by the percentage above, and then divide by 12 (for each month).
For a simple example, let's say your annual discretionary income is $12,000 and you're on PAYE. That means 10% of your discretionary income would be your student loan repayment amount. $12,000 * 10% = $1,200 per year. So, your monthly payment would be $100.
How To Reduce Your Student Loan Payment
Many borrowers still find that being on an income-driven repayment plan is tough. There still might not be a lot of money left after the student loan payment is made. As such, you might still be considering ways to reduce your student loan payment.
First, make sure that your income and household size are correct. If your income changes during the year, make sure that you re-certify your current income so that your payment is accurate.
Second, realize that income-driven repayment plans are the "best" option you have for getting a low monthly student loan payment.
In some cases, it could make sense to refinance your Federal student loan and get a low interest private student loan. We break down the list of the best places to refinance your student loans here, and you can see in minutes if that makes sense.
Final Thoughts
Discretionary income plays an important role in your student loan debt. Use our discretionary income calculator to find out what your discretionary income is, so that you can accurately assess what your student loan payment should be.
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 The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
Editor: Clint Proctor Reviewed by: Chris Muller
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.