How to Calculate Discretionary Income for Student Loan Payments

Understanding how to calculate your discretionary income is super important if you have student loans. It helps you figure out how much you might need to pay each month. Let’s break it down step by step, with some easy examples, so you can see how it’s done.

We’ll keep everything simple and clear.

What is Discretionary Income?

Discretionary income is the money you have left over after paying for your basic needs. These needs include things like housing, food, and taxes. For student loans, the government uses your discretionary income to decide how much you should pay each month.

The formula they use is pretty simple:

Discretionary Income = Your Total Income – 150% of the Poverty Guideline for Your Family Size and State

Let’s explain what each part means.

1) Total Income

Your total income is all the money you make in a year. This includes your salary, bonuses, and any other money you earn. If you have a job, this is usually the amount you see on your paycheck before any taxes or other deductions are taken out.

2) Poverty Guideline

The poverty guideline is a number the government sets every year. It helps them decide who needs extra help. This number changes based on the size of your family and where you live. For example, a family of four in California might have a different poverty guideline than a single person in Texas.

3) 150% of the Poverty Guideline

The government doesn’t just use the poverty guideline; they use 150% of it. This means they take the poverty guideline and multiply it by 1.5. This helps make sure they’re giving you a fair amount to live on before they start asking you to pay your student loans.

Make sure you’re using the correct discretionary numbers. Need help? We can do that

---

Let’s Lower Your Student Loan Payment

It’s super simple to see what you’re eligible for, and our trusted team can get you set up today

---

What We’ll Cover

Example 1: Single Person

Let’s start with a simple example. Imagine you’re single and live alone.

1. Total Income: You make $30,000 a year.
2. Poverty Guideline: Let’s say the poverty guideline for a single person is $13,590.

Now, we need to find 150% of the poverty guideline:

150% of $13,590 = $13,590 x 1.5 = $20,385

Next, we subtract this from your total income to find your discretionary income:

$30,000 – $20,385 = $9,615

So, your discretionary income is $9,615. This is the amount the government will use to figure out your student loan payments.

Example 2: Family of Four

Now, let’s look at a more complicated example. Imagine you have a family of four.

1. Total Income: Your family makes $60,000 a year.
2. Poverty Guideline: The poverty guideline for a family of four is $27,750.

Just like before, we find 150% of the poverty guideline:

150% of $27,750 = $27,750 x 1.5 = $41,625

Next, subtract this from your total income:

$60,000 – $41,625 = $18,375

Your discretionary income is $18,375.

Example 3: Married with No Kids

For this example, let’s say you’re married but don’t have any kids yet.

1. Total Income: Together, you and your spouse make $50,000 a year.
2. Poverty Guideline: The poverty guideline for a family of two is $18,310.

Find 150% of the poverty guideline:

150% of $18,310 = $18,310 x 1.5 = $27,465

Subtract this from your total income:

$50,000 – $27,465 = $22,535

So, your discretionary income is $22,535.

Why Is This Important?

Knowing your discretionary income helps you understand how much you might have to pay each month for your student loans. The government uses this number to make sure your payments are affordable. They don’t want you to pay so much that you can’t afford your basic needs.

How to Use This Information

When you apply for an Income-Driven Repayment (IDR) plan, you’ll need to provide your income information. The government will then calculate your discretionary income to decide your monthly payment.

Here’s a quick checklist to help you prepare:

1. Gather Your Income Information: Find your latest pay stubs or tax return. This will show your total income.
2. Know Your Family Size: Count everyone in your household, including yourself, your spouse, and any dependents.
3. Look Up the Poverty Guideline: Find the latest poverty guideline for your family size and state. You can usually find this information on the Health and Human Services (HHS) website.
4. Do the Math: Use the steps we outlined to calculate your discretionary income.

Extra Tips

1. Update Your Information: If your income or family size changes, let your loan servicer know. They can recalculate your payments based on your new situation.
2. Reapply Each Year: You’ll need to update your information every year to stay on an IDR plan. Make sure to do this on time to avoid any surprises.
3. Ask for Help: If you’re not sure about something, ask your loan servicer or a financial advisor. They can help you understand your options.

Conclusion

Calculating your discretionary income might seem tricky at first, but it’s really just a few simple steps.

By understanding how it works, you can take control of your student loan payments and make sure they’re manageable. Remember to gather your income information, know your family size, look up the poverty guideline, and do the math.

With this knowledge, you’ll be better prepared to handle your student loans and keep your finances on track.

If you have any questions or need more help, feel free to reach out to us. We’re here to help you navigate your student loan journey!