Discretionary Income

"Discretionary income" is a federally-defined term that determines your payment under every income-driven repayment plan. It's not the same as your take-home pay or what you'd consider "extra money" in a household budget — it has a specific federal definition.

The formula

Discretionary income is your adjusted gross income (AGI, from line 11 of your federal tax return) minus a multiple of the federal poverty line for your family size. The multiple depends on which IDR plan you're considering:

• SAVE Plan: AGI − 225% of poverty line
• PAYE Plan: AGI − 150% of poverty line
• IBR Plan: AGI − 150% of poverty line
• ICR Plan: AGI − 100% of poverty line (the least generous)

What this means in practice

Under SAVE, more of your income is excluded from the calculation, so your discretionary income is lower — and so is your monthly payment. Under ICR, less is excluded, so your discretionary income is higher and your payment is higher.

Family size matters

The federal poverty line increases with each additional household member. A family of four has a much higher poverty line than a single person. Counting your family size correctly on the IDR application can materially lower your payment.

Filing status matters

If you're married and file jointly, your spouse's income is generally included in the calculation. If you file separately, most IDR plans will only count your individual income. (SAVE has its own rules here — talk to a strategist if you're weighing the trade-offs.)

When discretionary income is zero

If your AGI is below the relevant poverty multiple, your discretionary income is zero — and your IDR payment is $0 per month. Months at $0 still count toward IDR forgiveness and (for borrowers in qualifying employment) toward PSLF.