How is Discretionary Income Calculated for Student Loan Payments
Knowing what your discretionary income is (and how discretionary income is calculated for student loans) is key to managing your federal student loan payments. The government uses discretionary income — the part of your adjusted gross income (AGI) above a set percentage of the federal poverty guideline — to figure out monthly payments for income-driven repayment (IDR) plans.
Recent changes in legislation mean that some IDR plans and their payment calculations are shifting. For example, the new Repayment Assistance Plan (RAP) starting in July 2026 will no longer rely on discretionary income and will instead base payments directly on AGI. This could lead to higher monthly payments for some borrowers.
In this guide, we’ll break down the different IDR plans, explain how discretionary income works, and show what’s changing soon so you can plan your student loan strategy wisely.
How is Discretionary Income Calculated for Student Loan Repayment?
What is Discretionary Income?
Discretionary income is the part of your income above a certain poverty level. The government uses it to calculate how much you pay each month.
Different plans use different percentages of the federal poverty guideline (FPL):
| Plan | Protected Income | % of Discretionary Income Used |
|---|---|---|
| SAVE (2024–2025) | 225% of FPL | 5% (undergrad) / 10% (grad) |
| PAYE & New IBR | 150% of FPL | 10% |
| Old IBR (pre-2014) | 150% of FPL | 15% |
| Old ICR | 100% of FPL | 20% |
Tip: Most borrowers in 2025 are on SAVE, so 225% of FPL is now the main formula.
Federal Poverty Guidelines for 2025
Here’s the 2025 FPL for the continental U.S.:
| Family Size | SAVE (225%) | PAYE/IBR (150%) | ICR (100%) |
|---|---|---|---|
| 1 | $33,885 | $22,590 | $15,060 |
| 2 | $45,915 | $30,610 | $20,440 |
| 3 | $57,945 | $38,630 | $25,820 |
| 4 | $69,975 | $46,650 | $31,200 |
| Add +1 | +$12,030 | +$8,020 | +$5,380 |
Alaska and Hawaii have slightly higher numbers.
How is Discretionary Income Calculated for Student Loans
Here’s how to figure out your payment under the SAVE plan (the most common in 2025):
- Start with your Adjusted Gross Income (AGI) from your latest tax return.
- If you file jointly and both have loans, combine both AGIs.
- If married but file separately, only your AGI counts (big advantage on SAVE).
- Subtract the protected amount (225% FPL for your family size).
- Multiply the remaining number by the correct percentage (5% for undergrad, 10% for grad).
- Divide by 12 to get your monthly payment.
Example (single borrower in Florida, undergrad loans only):
- AGI = $65,000
- Protected income = $33,885
- Discretionary income = $65,000 − $33,885 = $31,115
- 5% of $31,115 = $1,555.75 per year
- Monthly payment = $1,555.75 ÷ 12 ≈ $129.65
If you have grad loans, use 10% for that portion.
What Counts as Income?
The Department of Education uses AGI, which can include:
- Wages, bonuses, overtime
- Business income (Schedule C, partnerships)
- Rental income
- Investment income (interest, dividends, capital gains)
- Retirement distributions (401k, IRA, pensions)
- Unemployment benefits
- Taxable Social Security
- Alimony (pre-2019)
- Foreign income
- Gambling winnings
- Cancelled taxable debt
What does NOT count:
- Child support
- Welfare, SNAP, TANF, SSI
- Federal work-study earnings
- Gifts or loans from family/friends
- Roth IRA distributions (qualified)
- Pre-tax deductions like 401k, HSA, or health insurance
Special Cases
| Situation | How It Affects Discretionary Income |
|---|---|
| Married, file jointly | Spouse’s income counts (except old IBR) |
| Married, file separately | Only your income counts (SAVE loophole!) |
| Have kids | Family size includes your kids, even if they live elsewhere |
| Kids in college | Count as extra family members |
| Live in parents’ house | Usually counts as 1 unless you provide >50% support |
| AGI is high years after graduation | Use last year’s tax return unless you recertify early |
Cheat Sheet (Single Borrower, Continental U.S.)
| AGI | SAVE Payment | PAYE/New IBR | Old ICR |
|---|---|---|---|
| $30,000 | $0 | $0 | $0 |
| $50,000 | $67–$134 | $183 | — |
| $75,000 | $171–$342 | $433 | — |
| $100,000 | $275–$550 | $683 | — |
| $150,000 | $484–$967 | $1,183 | — |
Lower AGI + bigger family + pre-tax retirement contributions = lower payments, sometimes $0.
Quick Tips
- Recertify every year to update income and family size.
- If you don’t file taxes or your income dropped, submit alternative documentation (pay stubs, unemployment statement, employer letter).
- Using retirement contributions or filing separately may reduce your payment.
- Use the official StudentAid.gov IDR Calculator for exact numbers.
Your monthly payment under an income-driven plan depends on your AGI minus a protected poverty line amount. The lower your AGI and the bigger your family, the lower your payment. With proper planning, you might even pay $0 per month.
FAQs
What is discretionary income and why does it matter for student loans?
Discretionary income is the amount of money you have left after subtracting a portion of the federal poverty guideline for your family size and state from your annual income. For income-driven repayment (IDR) plans, your monthly student loan payments are based on this number. Knowing your discretionary income helps you estimate what you’ll pay and plan your budget.
How do I calculate my discretionary income for an IDR plan?
To calculate discretionary income:
- Find the federal poverty guideline for your state and family size.
- Multiply it by the percentage your IDR plan uses:
- SAVE Plan: 225%
- PAYE or IBR: 150%
- ICR: 100%
- Subtract that amount from your annual income.
- Apply the plan’s percentage to determine your annual or monthly payment.
For example, under SAVE, if your discretionary income is $34,788, you’d pay 5% for undergrad loans (~$145/month) or 10% for grad loans (~$290/month).
How can my discretionary income and payments change over time?
Discretionary income isn’t fixed — it can change every year. Your monthly payment may go up or down if:
- Your salary increases or decreases
- Your family size changes (marriage, children)
- You move to a different state (poverty guidelines vary)
- Federal poverty guidelines are updated
Also, starting July 2026, the new Repayment Assistance Plan (RAP) will use AGI instead of discretionary income, with a $10 minimum monthly payment and rates from 1–10% of AGI depending on income.
Can refinancing my federal student loans affect my discretionary income?
Indirectly, yes. If you refinance federal loans with a private lender, you’re no longer eligible for income-driven repayment plans that calculate payments based on discretionary income. While refinancing might lower your interest rate or monthly payment, it removes protections like IBR, PAYE, or potential loan forgiveness. So, if you think you might want an IDR plan, refinancing might not be the best choice.
How does my filing status or family size affect discretionary income?
Your discretionary income can change depending on whether you’re married, have dependents, or file taxes jointly. Married couples who file jointly use their combined AGI to calculate payments, which could increase monthly payments. Filing separately generally bases payments on your income alone, but it might reduce some tax benefits. Family size also matters — the more dependents you have, the higher the federal poverty guideline threshold, which can lower your payments.
