Calculate Your Discretionary Income

NerdWalletOctober 21, 2020
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If you’re struggling to afford federal student loan payments, you may be able to lower them with an income-driven repayment plan. Your new monthly payment will be capped at 10%, 15% or 20% of your discretionary income, depending on the plan. Use this calculator to estimate payments under income-based repayment and other income-driven plans.

Income-based repayment calculator

What is discretionary income?

Discretionary income is how much money you have left after paying taxes and necessary expenses, like food and shelter. It doesn’t factor in money spent on things like entertainment, shopping or other non-essential purchases.

Discretionary income matters for federal student loans because the Education Department uses it to calculate payments for income-based repayment and other income-driven plans. By accounting for your necessities, discretionary income helps determine how much you could reasonably pay each month. If yours is low enough, your payment may be reduced to $0 a month.

Of course, people have different needs — or things they consider needs. The government isn’t going to have borrowers submit receipts and defend their spending choices. Instead, it uses a standardized discretionary income definition to make things as fair as possible.

How is discretionary income calculated?

To calculate discretionary income for most student loan repayment plans, the Education Department:

  • Finds the correct federal poverty guideline for your location and family size.

  • Multiplies that number by 1.5.

  • Subtracts that number from your adjusted gross income.

Income-Contingent Repayment, which sets payments at 20% of discretionary income, uses 100% of the poverty line instead of 150%.

Adjusted gross income is the amount you pay taxes on. You’ll find it on your most recent tax return on Line 37 if you filed Form 1040; Line 21 on 1040A; or Line 4 on Form 1040-EZ.

Other student loan calculators

Student loan refinance calculator: Compare your current loan payment or multiple payments with a refinanced student loan.

Student loan consolidation calculator: Compare your payments under federal loan consolidation plans with your current bills.

Parent PLUS loans calculator: Estimate your monthly payments on federal direct PLUS loans.

Daily student loan interest calculator: Estimate the amount of interest that your loan accrues daily and between payment periods.

Weighted average interest rate calculator: Determine what the average rate on your current loans is.

Student loan calculator: Determine the monthly payment on new student loans you take out, federal or private.

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