What Is Discretionary Income for Student Loans? (2026)

Discretionary income for student loans is your adjusted gross income (AGI) minus 150% of the federal poverty guideline for your family size. Your loan servicer uses this number to set your monthly payment under an income-driven repaymentIncome-Driven Repayment (IDR)A category of federal student loan repayment plans that calculate monthly payments based on income and family size rather than loan balance. Any remaining balance can be forgiven after 20–25 years of qualifying payments. (IDR) plan. It has nothing to do with what you spend each month — it's a formula the Department of Education applies to your tax return, not a measure of the money you have left after rent and bills.

The formula, in one line:

Discretionary incomeDiscretionary IncomeFor federal income-driven repayment plans, a borrower's adjusted gross income minus a set percentage of the federal poverty guideline for their family size. Monthly IDR payments are calculated as a percentage of this amount. = AGIAdjusted Gross Income (AGI)A borrower's total taxable income minus specific deductions, as reported on a federal tax return. Federal income-driven repayment payments are generally calculated using AGI. − (150% × the federal poverty guideline for your family size)

What discretionary income means for student loans

The everyday definition of discretionary income — the money left after you pay for necessities — does not apply here. The Department of Education uses its own formula, and it's the only one that matters for your IDR payment.

A common misconception is that your rent, childcare, car payment, or cost of living factors into the number. They do not. Discretionary income is not a measure of what you can afford after your bills. It is a fixed subtraction: your AGI minus a poverty-guideline threshold. Two borrowers with the same AGI and the same family size have the same discretionary income, even if one lives in an expensive city and spends every dollar and the other lives cheaply and saves.

Here's how it works: take your AGI (line 11 on your most recent Form 1040) and subtract a percentage of the federal poverty guideline for your family size and state. What's left is your discretionary income. Your servicer then takes a percentage of that number and divides it by 12 to get your monthly payment.

Your AGI is the starting input. Your discretionary income is what's left after the poverty guideline buffer is subtracted. They are not the same number — your discretionary income is always lower than your AGI.

IBR and PAYEPay As You Earn (PAYE)A federal income-driven repayment plan that caps monthly payments at 10% of discretionary income and forgives remaining debt after 20 years. It is only available to borrowers who took out their first federal loans on or after October 1, 2007. use 150% of the poverty guideline as the buffer. ICRIncome-Contingent Repayment (ICR)The oldest federal income-driven repayment plan, with payments generally set at 20% of discretionary income or a fixed 12-year amount, whichever is lower. It is the only IDR plan available to Parent PLUS borrowers after consolidation. uses 100%, which protects less income and produces a higher payment. The Repayment Assistance Plan (RAP), available since July 1, 2026, does not use the discretionary income formula at all — it applies a percentage directly to your full AGI. More on that below.

Discretionary income vs. disposable income

Disposable income is your take-home pay after income taxes. Discretionary income for student loans is a formula that subtracts a poverty-guideline-based threshold from your AGI. The two are unrelated. Your disposable income could be low because of rent, car payments, and medical bills, but if your AGI is high, your student loan discretionary income will still be high.

How to calculate your discretionary income

The formula is: AGI − (poverty guideline × the plan's multiplier) = discretionary income.

• Find your AGI. This is line 11 on your most recent Form 1040. It is not the same as your gross income or your take-home pay. AGI is your gross income after above-the-line deductions.
• Count your family size. Your family size includes you, your spouse if married, and any dependents you provide more than 50% support for — regardless of where they live.
• Look up the poverty guideline. The Department of Health and Human Services publishes federal poverty guidelinesPoverty GuidelinesAnnual income thresholds published by the U.S. Department of Health and Human Services, used in federal student loan programs to calculate discretionary income and determine eligibility for certain repayment benefits. every January. The guideline varies by family size and by state (Alaska and Hawaii have higher amounts).
• Multiply the poverty guideline by the plan's percentage. For IBRIncome-Based Repayment (IBR)A federal income-driven repayment plan that caps monthly payments at 10% or 15% of discretionary income, depending on when the loans were taken out. Remaining debt is forgiven after 20 or 25 years of qualifying payments. and PAYE, multiply by 150%. For ICR, multiply by 100%.
• Subtract. Your AGI minus the result from the previous step equals your discretionary income.

Worked example. Marcus is single with no dependents. He lives in Maryland. His AGI on his most recent tax return is $50,000. He is repaying his loans under IBR.

• 2026 poverty guideline for a family of one (48 contiguous states): $15,960
• 150% of poverty guideline: $15,960 × 1.5 = $23,940
• Discretionary income: $50,000 − $23,940 = $26,060

Marcus's IBR payment depends on when he first borrowed:

• New borrower (first loan on or after July 1, 2014): 10% of discretionary income → $26,060 × 10% ÷ 12 = $217/month
• Not a new borrower (first loan before July 1, 2014): 15% of discretionary income → $26,060 × 15% ÷ 12 = $326/month

If Marcus's AGI were at or below $23,940, his discretionary income would be zero, and his IBR payment would be $0/month.

The same steps work for any plan — swap in 100% instead of 150% for ICR, and apply that plan's percentage at the end. If you'd rather not run the numbers by hand, the IBR calculator does this calculation for you.

How each IDR plan uses discretionary income

Each plan applies its own percentage to your discretionary income — 10% under IBR for new borrowers and PAYE, 15% under older IBR, and up to 20% under ICR:

• IBR (new borrower): 10% of discretionary income, divided by 12. Forgiveness after 20 years.
• IBR (not a new borrower): 15% of discretionary income, divided by 12. Forgiveness after 25 years.
• PAYE: 10% of discretionary income, divided by 12. Forgiveness after 20 years. Capped at the 10-year Standard Repayment amount.
• ICR: The lesser of 20% of discretionary income or a fixed 12-year payment adjusted for income. Forgiveness after 25 years. ICR uses 100% of the poverty guideline instead of 150%, which means less income is protected.

PAYE and ICR are being eliminated under the One Big Beautiful Bill Act. Both plans close entirely on July 1, 2028. Borrowers still enrolled at that point will need to switch to IBR or RAP before then, or be moved to a new plan automatically. IBR itself is not being eliminated — it stays available for borrowers who qualify.

SAVE (which replaced REPAYERevised Pay As You Earn (REPAYE)A former federal income-driven repayment plan that capped payments at 10% of discretionary income, with forgiveness after 20 or 25 years. REPAYE was replaced by the SAVE Plan in 2023.) was struck down by the 8th Circuit on March 10, 2026. It is no longer available. Borrowers previously enrolled in SAVESAVE Plan (SAVE)The Saving on a Valuable Education Plan, a federal income-driven repayment plan introduced in 2023 to replace REPAYE. Its implementation has been subject to ongoing litigation, and enrolled borrowers have faced court-ordered forbearance periods. are in administrative forbearance while they transition to another plan.

The Federal Student AidFederal Student Aid (FSA)The office within the U.S. Department of Education that manages federal grants, work-study, and student loans. It runs the FAFSA, the StudentAid.gov website, and oversees the federal loan servicers. Loan Simulator can estimate your payment under each plan without doing the math by hand.

Does RAP use discretionary income?

No. The Repayment Assistance Plan does not use the discretionary income formula. It applies a percentage — from 1% to 10% on a sliding scale — directly to your full AGI, with no poverty-guideline buffer subtracted first. The plan then reduces your payment by $50 for each dependent, and no payment falls below a $10/month floor. RAP also waives unpaid interest each month you make your payment and matches up to $50 toward your principal if your payment alone doesn't cover that much.

Because RAP has no poverty-guideline buffer, it counts your income from the first dollar rather than from the amount above 150% of poverty. So a lower headline percentage doesn't automatically mean a lower payment — for some lower- and middle-income borrowers, a percentage of full AGI comes out higher than a percentage of discretionary income does under IBR. There's no shortcut for knowing which is cheaper: compute both — your IBR payment on discretionary income and your RAP payment on full AGI — and compare.

RAP became available July 1, 2026. Borrowers whose first federal loan is disbursed on or after that date choose between RAP and the new Standard Repayment PlanStandard Repayment PlanThe default federal repayment plan, which spreads loan payments evenly over 10 years — or up to 30 years for consolidation loans. It usually results in the lowest total interest paid among federal plans. — IBR is not an option for them. Borrowers with loans from before July 1, 2026 can opt into RAP or stay on a plan they already qualify for, including IBR. For the full side-by-side, see IBR vs. RAP.

How your discretionary income changes over time

Your discretionary income recalculates every year when you complete your annual recertification. Three things can change it:

• Your AGI. A raise increases it. A job loss decreases it.
• Your family size. Adding a dependent lowers your discretionary income because the poverty guideline increases with family size.
• The poverty guideline itself. HHS updates the guideline each January based on inflation.

If you do not complete your annual recertification on time, your servicer may reset your payment to the 10-year Standard Repayment amount.

Some servicers pull tax data from the IRS months before a borrower's recertification anniversary, which can trigger an unexpected payment increase. When you set up or recertify a plan, you're usually offered the option to let the servicer automatically retrieve your income from the IRS going forward. Declining it and providing your income yourself keeps you in control of which tax year is used and when your payment changes. If your payment changed and you haven't recertified yet, check with your servicer to confirm which tax year they used.

Related: Marriage and Student Loan Repayment

How to lower your discretionary income

Your discretionary income starts with your AGI. If you reduce your AGI, your discretionary income drops — and so does your IDR payment. Common levers include increasing pre-tax retirement contributions, contributing to a health savings account (HSA), and, for married borrowers, filing taxes separately.

Filing separately can lower the income counted for your payment because a married borrower who files separately generally has only their own AGI counted, not their spouse's. Some borrowers file separately in the year their income is certified to lower the payment, then amend to a joint return later. The tradeoff is that filing separately can raise your tax bill or cost you certain credits and deductions, and the math differs in community property states — so this is a decision to run by a tax professional before you file, not a defaultDefaultThe status of a federal student loan after the borrower has failed to make required payments for 270 days. Default can trigger collection actions such as wage garnishment, tax refund offset, and damage to credit reports. move.

Related: How AGI Affects Your Student Loan Payment — and How to Lower It