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Discretionary Income Calculator

Created by Tibor Pál, PhD candidate
Reviewed by Dominik Czernia, PhD and Jack Bowater
Based on research by
Assistant Secretary for Planning and Evaluation (ASPE);
Last updated: Jun 05, 2023

Use the discretionary income calculator to compute your discretionary income, required for certain student loan repayment plans. In the following, we introduce the concept of the calculation, and show what discretionary income is through some practical examples.

Discretionary income definition

The discretionary income definition might be phrased as "the amount of income remaining after deducting taxes, social security charges, and expenditures on necessary items". In other words, it is the part of your income that is left after paying all mandatory and required living expenses. It doesn't account for personal items, such as electronics, vacations, or any additional shopping you might do, and it also doesn't include the credit limits or loans available to you.

What is discretionary income? - student loans

For student loans, discretionary income is the difference between your annual income and 150 percent of the poverty guideline for your family size and state of residence.

Discretionary income differs from the disposable income, which is your total personal income lowered only by the taxes needed to be paid. In this way, the discretionary income equals the disposable income (after-tax income), minus survival expenses (such as food, medicine, rent or mortgage, utilities, insurance, transportation, property maintenance, child support, etc.) required to maintain a certain standard of living. Using the above discretionary income definition, we get the formula:

discretionary income = gross income – taxes – all compelled payments (bills)

How to use the discretionary income calculator?

The discretionary income calculator is straightforward to use. Just fill in all the informations from the top to the bottom and read your result. If you're wondering how can you do the estimation by hand, check the section below, where we explained everything from scratch using two examples. Still, isn't it much faster to use our calculator?

How to calculate discretionary income in the U.S.?

In the United States, discretionary income is mainly used in federal student loans. More specifically, it is used to determine the monthly payment for an income-driven repayment plan, which are the following:

  • Pay As You Earn Repayment Plan (PAYE);
  • Revised Pay As You Earn Repayment Plan (REPAYE);
  • Income-Based Repayment Plan (IBR); and
  • Income-Contingent Repayment Plan (ICR).

For this reason, we designed this calculator for such a context.

The best way to understand how discretionary income is estimated, and how this calculator works is to scrutinize two examples through three simple steps.

Example 1: Magda is a family of two living in Texas, and she and her husband both earn $40,000 each.

Example 2: Jack earns $70,000 and lives with his wife, who has no income. They live in Hawaii and have three children.

  1. Check the table for the Federal poverty guidelines maintained by the U.S. Department of Health and Human Services.

Cross-check the number of family members with the amount assigned to it.
The figures are slightly different in Alaska and Hawaii, due to differing standards of living.

The poverty line for Magda with a household of 2 is $17,240.

The poverty line number for Jack for a household of 5 is $35,280.

  1. Take the 150 percent of the matching poverty line, that is, multiply the figure by 1.5.

To estimate the average level of expenses, the authorities set up a simple formula that you can easily apply to the previously determined poverty line figures.

Note, that, for the Income-Contingent Repayment Plan (ICR), the government applied 100% instead of 150% for the estimation.

Example 1: Magda, with poverty line number 2 in Texas, has $17,240 * 1.5 = $25,860.

Example 2: Jack, with poverty line number 5 in Alaska, has $35,280 * 1.5 = $52,920.

These amounts are the deductions that correspond to the justified expenses for the family with a given number of persons.

  1. Subtract the calculated deduction from your total gross income.

As the last step, the authorities subtract the above-estimated deductions (expenses) from the household's total income.

Example 1: Magda has a total income of $80,000. The discretionary income is

$80,000 - $25,860 = $35,310.

Example 2: Jack has a total income of $70,000. The discretionary income is

$70,000 - $52,920 = $17,080.

Note, that if you are married and file taxes separately, the government may consider the gross incomes separately for the calculation. In this regard, you can read the particulars at the Student Debt Center.

Tibor Pál, PhD candidate
Annual Adjusted Gross Income
Marital status
Number of dependents
Your annual discretionary income, based on the HHS Poverty Guidelines for 2022, is $19,615.
Your annual discretionary income, with the Income-Contingent Repayment (ICR) Formula, is $26,410.
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