Discretionary income is the amount of money an individual or household has left over after paying for necessary expenses such as taxes, rent/mortgage, utilities, groceries, and other bills. It is the income available for spending or saving after the essentials have been taken care of. Discretionary income is calculated by subtracting all payments that are necessary to meet current bills from disposable income (after-tax income) .
Discretionary income is important in determining student loan payments on federal income-driven repayment plans. The federal government uses discretionary income, calculated using federal poverty guidelines, to decide how much an individual can afford to pay each month toward their student loans when they sign up for income-driven repayment.
It is important to note that discretionary income and disposable income are not the same thing. Disposable income is simply the amount of money an individual has left after paying taxes. Discretionary expenses include things like dining out, streaming services, and tickets to movies, concerts, and sporting events.
