How Discretionary Income Works

To calculate your IDR payment, take the number above and multiply by 10% if you're on PAYE or new IBR, borrowed on or after July 1, 2014, or 15% if you're on old IBR, borrowed before July 1, 2014. Then divide by 12 to get your estimated monthly payment.

Keep in mind, if your income has fallen compared to the last time you recertified, you may be able to recertify early.

How Discretionary Income Works

This discretionary income calculator is updated using the latest poverty guidelines that the government publishes every January.

Servicers use the Federal Poverty Line to calculate how much income they actually need to count when calculating payments under Income-Driven Repayment plans.

The currently available IDR plans, including IBR and PAYE, charge around 10% to 15% of your income above 150% of the federal poverty line.

Note that the SAVE Plan is no longer available, and the new Repayment Assistance Plan is expected to become available by July 2026.

2026 Federal Poverty Line Values for U.S. Contiguous States

Below is the breakdown of federal poverty line values for the contiguous states in 2026, along with what 150% of the poverty line looks like for each family size.

Note: For each additional family member, add $5,680 to calculate the poverty line and adjust 150% of FPL accordingly.

These numbers are used when calculating income-based monthly student loan payments.

Different Discretionary Income Calculations for Hawaii and Alaska

There are slightly different calculations for discretionary income if you live in Alaska or Hawaii. The reason is that the poverty line is higher in these two states because of higher costs of living.

For example, the poverty line for a family size of 1 in these states is:

• Alaska: $19,950
• Hawaii: $18,360

For family sizes larger than 1, the poverty line is higher than the other 48 states for both Alaska and Hawaii. You take that unique poverty line and multiply it by 150%. This means the discretionary income deduction for residents of these states is larger than for most U.S. residents.

What Is Discretionary Income?

Discretionary income is typically defined as what you have left over after covering necessary expenses like rent, mortgage, groceries, utilities, and other basic costs. This is often different from disposable income, which is your take-home pay after taxes.

For student loan repayment, the Department of Education needs a standard way to determine discretionary income. That is why Income-Driven Repayment plans use a specific formula based on adjusted gross income, family size, and the federal poverty guideline.

Income-Driven Repayment programs like IBR and PAYE generally take 10% to 15% of your discretionary income. This means the government needs a standardized formula to determine what payment should be charged.

Discretionary Income Calculation Depends on Your Family Size

The discretionary income definition is technical, but the calculation is easy to understand. There are three basic steps.

Step 1: Look Up the Federal Poverty Line for Your Family Size

The contiguous United States and the District of Columbia use the same poverty guidelines. If you live in Alaska or Hawaii, the guideline is higher.

Step 2: Multiply the Federal Poverty Line by 150%

The discretionary income definition works like a deduction from your income. You get to subtract a certain amount from your adjusted gross income before your student loan payment percentage is calculated.

Take the federal poverty number for your family size and multiply it by 1.5. That gives you 150% of the poverty line.

For example, for a family size of four in Virginia, the 2026 poverty line is $33,000. Multiply that by 1.5, and the deduction is $49,500.

For a single person, the deduction would be $15,960 × 1.5 = $23,940.

Step 3: Subtract the Deduction from Your Adjusted Gross Income

Once you know the deduction, subtract it from your adjusted gross income. The remaining amount is your discretionary income.

Example: Say a borrower in Virginia makes $100,000, their spouse makes $60,000, and their combined income is $160,000. If their family size is four, the deduction is $49,500.

To estimate the annual payment under IBR or PAYE, multiply $110,500 by 10%, then divide by 12 to get the monthly payment.

Example: Payment After Graduation

Many borrowers do not earn income while they are in graduate school. However, if they have a working spouse, that income can affect the required payment under an income-driven repayment program.

For example, say Jane is a graduating medical student and her husband Matt is a teacher. Matt makes $50,000 per year, and Jane made $0 last year.

For a family size of two, the federal poverty line is $21,640. Multiply that by 1.5 to get $32,460.

Now multiply $17,540 by 10% and divide by 12. That gives an estimated monthly payment of about $146.

That payment may count toward IDR forgiveness and PSLF if applicable.

Repayment Assistance Plan Note

Beginning July 1, 2026, a new Repayment Assistance Plan is also expected to become available. RAP uses a different formula based on a percentage of total AGI rather than discretionary income. The existing IBR plan is expected to remain available to current borrowers.

How to Use Discretionary Income to Know Future Student Loan Payments

Your future student loan payments do not need to be a mystery when you understand how discretionary income works.

Think of discretionary income as a standard deduction for your student loans. It represents the amount of income you can earn before you have to pay anything under certain income-driven repayment plans.

If you are single, take your adjusted gross income, subtract the discretionary income deduction which is 150% of the federal poverty line for your family size, and then multiply the result by 10% if you are on PAYE or new IBR, or 15% if you are on old IBR. Divide by 12 to estimate your monthly payment.

How Discretionary Income Affects Student Loan Payments Over Time

Discretionary income changes every year and depends on taxable income, family size, and the government's federal poverty line numbers. This means student loan payments can change every year under IBR and PAYE.

The federal poverty line usually increases over time because of inflation. That means your discretionary income deduction may increase yearly as well, slightly lowering payments compared to what they might otherwise be.

If your income increases, your payment may increase. If your income drops, your payment may decrease. If your income drops below 150% of the federal poverty guideline, your monthly payment could be $0.

On most IDR plans, if you are not making payments or your payment is very low, the balance may continue to grow as unpaid interest accrues. However, once you reach the end of the repayment term, usually 20 to 25 years, any remaining balance may be forgiven depending on the program rules.

Want Help Understanding Your Student Loan Options?

If you would rather not calculate your payment yourself, our team can help you understand your repayment options and explore which student loan plan may fit your situation.

A customized student loan plan can help you better understand IDR, PAYE, IBR, PSLF, consolidation, and other repayment options based on your income, family size, and loan details.