How to Calculate Discretionary Income for Student Loans

To calculate discretionary income for student loans, subtract a percentage of the federal poverty guideline (for your family size and state) from your adjusted gross income. The percentage depends on your income-driven repayment plan: 150% under Income-Based Repayment (IBR) and Pay As You Earn (PAYE), and 100% under Income-Contingent Repayment (ICR). For 2026, the poverty guideline for a single person in the contiguous states is $15,960, so a single IBR or PAYE borrower shields $23,940 of AGI before any payment is calculated, while an ICR borrower shields only $15,960.¹

Discretionary income can never be less than zero. If your AGI falls at or below the protected amount, the formula produces zero and the calculated payment is $0.¹

The Three Inputs You Need

Adjusted Gross Income

Start with your AGI from Line 11 of IRS Form 1040.² AGI is your total earnings minus deductions such as student loan interest and retirement contributions, so it is lower than gross pay. The Department of Education uses AGI rather than paycheck totals because it gives a stable, standardized number.

If your income has dropped since your last return, you don’t have to use the outdated figure. You can submit recent pay stubs, an employer letter, bank statements, or dividend statements dated within 90 days of your application, or a signed statement listing your income sources.³

Family Size

Family size raises the amount of income protected from the formula. Count yourself, your spouse if married, and any children or other dependents who receive more than half of their financial support from you during the current year.⁴ Every additional person adds several thousand dollars to the protected amount, which lowers your discretionary income and your payment.

Where You Live

Residents of the 48 contiguous states and the District of Columbia use one poverty guideline table. Alaska and Hawaii each use higher tables. U.S. territories like Puerto Rico and Guam have no separate guideline; the federal agency running the loan program decides which table to apply.⁵

2026 Federal Poverty Guidelines

The Department of Health and Human Services publishes updated guidelines each January. For the 48 contiguous states and DC in 2026:⁶

1 person: $15,960
2 people: $21,640
3 people: $27,320
4 people: $33,000
5 people: $38,680
6 people: $44,360
7 people: $50,040
8 people: $55,720

For households larger than eight, add $5,680 per additional person. Alaska’s guideline for a single person is $19,950, and Hawaii’s is $18,360.⁶ Use the guidelines for the year your servicer requests.

The Multiplier Depends on Your Plan

Federal regulations define discretionary income as your AGI minus a percentage of the poverty guideline, or zero, whichever is greater.¹ Each plan uses a different percentage:

IBR and PAYE: 150% of the poverty guideline. For a single borrower in the contiguous states, this protects $23,940 ($15,960 × 1.5).
ICR: 100% of the poverty guideline. For a single borrower, this protects only the poverty line itself, $15,960.

A higher protection threshold produces a smaller discretionary income and a lower payment. That is why IBR and PAYE payments come out lower than ICR payments at the same income.

Worked Example: Single Borrower Earning $50,000

Assume one person in the family, contiguous states, $50,000 AGI.

IBR or PAYE

Poverty guideline: $15,960. Multiply by 1.5 to get $23,940. Subtract from AGI: $50,000 − $23,940 = $26,060 in annual discretionary income.

ICR

Poverty guideline: $15,960, with no multiplier beyond 1.0. Subtract from AGI: $50,000 − $15,960 = $34,040 in annual discretionary income. Because ICR shields less income, the resulting figure is higher.

If a different family size applies, swap in the correct guideline from the table above. If AGI falls at or below the protected threshold, discretionary income is zero.

From Discretionary Income to a Monthly Payment

Once you have the annual discretionary income, each plan applies a percentage and divides by 12:³

PAYE: 10% of discretionary income, divided by 12.
IBR for loans first borrowed on or after July 1, 2014: 10%, divided by 12.
IBR for loans first borrowed before July 1, 2014: 15%, divided by 12.
ICR: 20% divided by 12, or the amount you would pay on a fixed 12-year schedule adjusted for income, whichever is less.⁷

Applying those percentages to the $50,000 example:

PAYE or newer IBR: $26,060 × 10% ÷ 12 ≈ $217 per month.
Older IBR: $26,060 × 15% ÷ 12 ≈ $326 per month.
ICR: $34,040 × 20% ÷ 12 ≈ $567 per month, or less if the fixed 12-year calculation produces a lower figure.

Under IBR and PAYE, any calculated payment under $5 rounds down to zero. Under ICR, a calculated payment between $0 and $5 rounds up to a $5 minimum.⁴ Both IBR and PAYE also cap your payment at what you would owe under a standard 10-year schedule; if the percentage calculation runs higher, your payment stays at the standard amount.¹

Marriage and Tax Filing Status

If you file a joint federal return, your combined household AGI feeds the calculation. That can push payments up sharply because both incomes count. Under IBR and PAYE, married borrowers who file separately can exclude the spouse’s income and use only the borrower’s individual AGI. Filing separately can cost you certain tax credits, so weigh both sides.

Under ICR, both spouses’ incomes are included regardless of how you file. This matters especially for parents repaying a consolidated Parent PLUS loan through ICR.

Parent PLUS Loans

Parent PLUS loans are not directly eligible for any income-driven plan. If a Parent PLUS loan is consolidated into a Direct Consolidation Loan, the consolidated loan becomes eligible for ICR only.⁷ Since ICR uses just 100% of the poverty guideline and charges up to 20% of discretionary income, parent borrowers should expect higher payments than borrowers on IBR or PAYE at the same income.

What About the SAVE Plan

SAVE used a 225% threshold, which would shield $35,910 for a single borrower in 2026, and it charged 5% of discretionary income for undergraduate loans and 10% for graduate loans.¹ It is not currently available. A federal court blocked parts of the plan in June 2024, the Eighth Circuit ruled it unlawful in February 2025, and an injunction was entered in April 2025. In December 2025, the Department of Education announced a proposed settlement that would formally end SAVE, pending court approval.⁸

Borrowers who were enrolled in SAVE were placed into forbearance. Interest resumed accruing on August 1, 2025, and the Department has urged those borrowers to switch to another plan such as IBR to resume qualifying payments, particularly borrowers pursuing Public Service Loan Forgiveness.⁹

Under the One Big Beautiful Bill Act, new loans disbursed after July 1, 2026, will not be eligible for IBR, PAYE, or SAVE. Those plans are being replaced by a new Repayment Assistance Program (RAP). Borrowers currently enrolled in ICR, PAYE, or SAVE must transition to a new plan by July 1, 2028, or be moved into RAP automatically. Borrowers already on IBR can stay on it. When you are choosing among options that are currently available, the Loan Simulator at StudentAid.gov applies these same calculations to your actual balance and income.

1
eCFR. 34 CFR 685.209 – Income-Driven Repayment Plans
2
HealthCare.gov. Adjusted Gross Income (AGI)
3
Federal Student Aid. Income-Driven Repayment Plans
4
Federal Student Aid. Questions and Answers About IDR Plans
5
Federal Register. Annual Update of the HHS Poverty Guidelines
6
ASPE – HHS.gov. 2026 Poverty Guidelines
7
Federal Student Aid. What Is the Income-Contingent Repayment (ICR) Plan?
8
U.S. Department of Education. U.S. Department of Education Continues to Improve Federal Student Loan Repayment Options
9
Nelnet – Federal Student Aid. SAVE Forbearance