Discretionary Income.

In plain English

Discretionary income is what remains from your pay after taxes and essential living costs. In everyday budgeting it is the money free for saving or spending on wants. In student loans it has a specific legal definition, usually your income above a multiple of the federal poverty guideline, and income-driven repayment plans set your monthly payment as a percentage of it. Because the definition and multiple can change with the plan and the law, the payment it produces can shift.

01Why it matters

For borrowers on income-driven student loan plans, discretionary income directly sets the monthly payment, so understanding it explains why your bill is what it is.

02The math, step by step

An income-driven plan defines your discretionary income as earnings above 225 percent of the poverty line and charges 10 percent of it. If that figure is 24,000 dollars, your annual payment is about 2,400 dollars, or 200 a month.

03What this is NOT