1. What Is Discretionary Income?

Discretionary income is the amount of an individual's income that is left for spending, investing, or saving after taxes and necessities are paid. For loan purposes, it's often calculated as Adjusted Gross Income (AGI) minus 150% of the poverty guideline.

2. How Is Discretionary Income Calculated?

The calculator uses the following formula:

Where:

• \( AGI \) — Adjusted Gross Income in USD
• \( Poverty\ Line \) — Federal poverty guideline for your household size and state

Explanation: This calculation determines how much income you have available for loan repayment after accounting for basic living expenses.

3. Importance of Discretionary Income

Details: Discretionary income is crucial for determining loan repayment amounts, especially for income-driven repayment plans for student loans and other personal loans.

4. Using the Calculator

Tips: Enter your AGI (from your tax return) and the appropriate poverty guideline for your household size. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Where do I find my AGI?
A: Your AGI can be found on line 11 of your Form 1040 (U.S. Individual Income Tax Return).

Q2: How do I determine the poverty guideline?
A: Poverty guidelines are published annually by the U.S. Department of Health and Human Services and vary by household size and state.

Q3: What if my discretionary income is negative?
A: A negative result means your income is below 150% of the poverty line, which may qualify you for $0 payments on income-driven repayment plans.

Q4: Is this calculation used for all loans?
A: This specific calculation is primarily used for federal student loan repayment plans. Other loans may use different calculations.

Q5: How often should I recalculate this?
A: You should recalculate whenever your income changes significantly or annually for income-driven repayment plans.