Discretionary Income Calculator for 2025

Our discretionary income calculator below (fully updated with the latest poverty line numbers) will show you the brand new definition of discretionary income for 2025. President Biden's new income driven SAVE Plan now excludes 225% of income instead of 150% like IDR plans did historically.

To calculate your new IDR payment, take the number above and multiply by 5% if you have undergrad loans only or 10% if you have grad school loans only. If you have a mix of undergrad and grad loans, take the weighted average between 5% and 10% based on what percent of undergrad loans you have.

Keep in mind if your income has fallen compared to the last time you recertified, you can always recertify early.

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How Discretionary Income Works

The Discretionary Income Calculator above is completely 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 pay a percentage of Income-Driven Repayment (IDR) plans.

The most recent IDR plan finalized by President Biden in June 2023 is called the SAVE Plan (Saving on a Valuable Education).

This plan will only charge 5% to 10% of your income above 225% of the federal poverty line.

See below for the breakdown of federal poverty line values for the contiguous states in 2025 as well as what 225% of the poverty line looks like for your family size.

2025 Federal poverty line values for U.S. contiguous states

Family Size	Poverty Line Values	225% of FPL (Used for SAVE Plan)
1	$15,650	$35,213
2	$21,150	$47,588
3	$26,650	$59,963
4	$32,150	$72,338
5	$37,650	$84,713
6	$43,150	$97,088
7	$48,650	$109,463

Use these numbers when calculating your income-based monthly student loan payments. That link has a calculator that will do it for you.

Different Discretionary Income Calculations for Hawaii and Alaska

There's slightly different calculations for discretionary income if you happen to life in Alaksa or Hawaii.

The reason is the poverty line is higher in these two states due to higher costs of living.

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

• Alaska: $19,550
• Hawaii: $17,990

For family sizes larger than 1, the poverty line is higher than for the other 48 states for each of Alaska and Hawaii. Take that unique poverty line and multiply by 225%, and discretionary income for residents of these two states is larger than for most US residents.

What is Discretionary Income?

Discretionary income is typically defined as what you have left over after you've covered your necessary expenses (like rent/mortgage, groceries, utilities, etc.). Often, this type of discretionary income is contrasted with disposable income, which is your take-home pay after your social security and income taxes have been taken out of your paycheck.

With such a broad definition, it can be difficult to determine exactly what one's discretionary income is. Expenses that one person feels are necessities may seem like luxury items to someone else. The Department of Education needs a concrete way to determine your discretionary income for the purpose of calculating your student loan payments.

The federal government created Income-Driven Repayment (IDR) plans because they want payments on federal student loans to be affordable no matter how much you owe. How does the government figure out what an affordable payment is, though? That's where the discretionary income definition comes in.

Income-Driven Repayment programs like REPAYE, PAYE, IBR, and ICR take 10% to 20% of your “discretionary income.” That means the government needs a standardized formula to figure out what they are supposed to charge you.

Once you know how to calculate YOUR discretionary income, you'll never need to worry or wonder what your student loan payments are going to look like ever again.

Discretionary Income Calculation Depends on Your Family Size

The discretionary income definition is a technical one, but it's easy to understand. There are three steps in the calculation.

Step 1: Look up the Federal Poverty Line (FPL) for your family size

You can find these numbers by searching “federal poverty guideline” or by checking out the numbers over at the ACA Exchange. The contiguous United States and the District of Columbia all have the same poverty guidelines. But if you live in Alaska or Hawaii, it's a bit higher.

Step 2: Multiply the Federal Poverty Line for Your Family Size by 225%

You know how when you're doing your income taxes, you get to deduct something from your income? The discretionary income definition is similar. You get to deduct a certain amount of money from your adjusted gross income before the government wants a percentage of it under an income-driven repayment program.

Now we'll learn how to calculate that deduction.

Take the federal poverty number for your family size and multiply it by 2.25. That's 225% of the poverty line.

Let's look at the father in Virginia with a family size of four. His poverty line number in 2025 is $32,150. Take that number from 2025 and multiply by 2.25. His deduction for the purposes of the discretionary income definition is $72,338.

For a single person, that deduction would be $15,650 * 2.25 = $35,213.

Step 3: Take Your Adjusted Gross Income from the Previous Tax Year and Subtract the Deduction. That's Your Discretionary Income

Remember I said steps one and two give you the amount of income that the government won't count in your student loan payment calculation. Here's how the mechanics of that works.

Say the dad from Virginia has a spouse who makes $60,000 per year. He makes $100,000 and has $300,000 of law school loans. Say their combined income on the previous year's tax forms shows $160,000.

To find his annual payment under the SAVE Plan, he would take $160,000 – $70,200 and multiply that by 10%. Divide that number by 12 to get the monthly payment.

How to Use the Discretionary Income Definition to Find Out What You'll Pay After Graduation

Most people don't make any income while they're in grad school. They might have a working spouse, and if so that will influence the required payments under an income-driven repayment program.

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

Using the discretionary income definition, we first look up the federal poverty line for their family size of two. That is $21,150. Now we multiply by 2.25 to get $47,588.

Take $50,000 and subtract $47,588. Now multiply by 5% to 10% depending on the mix of grad and undergrad loans and divide by 12.

That payment is almost $0 a month and it counts for IDR forgiveness and PSLF if applicable.

If you wanted to know how much you'll have to pay on your student loans, use our Income-Based Repayment calculator to see what you would pay on IBR, PAYE, or New REPAYE / SAVE.

The Income-Contingent Repayment plan (ICR) is generally unhelpful as it's the only one of the current plans that bases payments on 20% of discretionary income instead of 10%. However, it's the only IDR plan that Parent Plus loan borrowers are able to join.

How to Use Discretionary Income to Know Your Future Student Loan Payments

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

This of discretionary income as if it was a standard deduction for your taxes. It represents the amount of income you can earn before you have to pay anything on your student loans.

So pretend you have to recertify and your servicer pulls your prior year AGI info on your 1040.

If you're single, take that number and subtract your discretionary income, and multiply the result by 5% to 10% of the remainder. Remember it's 5% if you owe only undergrad loans and 10% if you only owe graduate school loans. And it's a weighted average if you owe some of each.

How Does Discretionary Income Affect Student Loan Payments Over Time?

Discretionary income changes every year and is dependent upon taxable income, family size, and the government's federal poverty line numbers. That means student loan payments change every year under SAVE/PAYE/IBR.

The federal poverty line increases over time because of inflation. That means your discretionary income, or the deduction you get before having to pay a percent of your income to student loans, would increase yearly as well.

Keep in mind that for most people with student loan debt, your income would be larger than the poverty line. Your income would also probably grow at the rate of inflation or potentially more than that.

However, if you suffered a pay cut, your student loan payments would decrease. And if you experienced a job loss or any reduction in pay so dramatic that it dropped your income below 225% of your federal poverty guideline, your monthly payment would be $0.

But if you aren't making any payments, what will happen to your student loan balance?

On the SAVE plan, it won't grow. On other IDR plans, the balance will continue to grow as it accrues unpaid interest. However, keep in mind that once you reach the end of your repayment term (20 to 25 years), any remaining balance will be forgiven.

Want Help Solving Your Student Loans? We Can Help Optimize Your Payments

If you'd rather not do the discretionary income calculation yourself, our team of CFP® and CFA professionals save you a ton of time and probably a lot of money too with a customized student loan plan.

Take a look at how our student loan consult service could save you thousands of dollars over the life of your loan payback, especially with all the new rules for IDR plans.