What Is “Discretionary Income” And Why Does It Matter For Student Loans?

A black wallet on the ground.

Flickr user Ryan Loos

Discretionary Income is the money that you have left over after you have finished paying all your essentials such as rent, food, and utilities.

Spending Discretionary Income

While nobody can tell you how to spend your discretionary income, if you have outstanding student loans, you may want to be a little careful about what you spend this income on. Instead of spending it all on non-essentials, you should consider putting it towards paying off your loans. The earlier you get out of debt, the sooner you will be able to enjoy every cent that you earn without the stress of monthly payments.

Discretionary Income and Dependence

Discretionary income is particularly important if you opt for an income dependent repayment (IDR) plan. An income dependent repayment plan can come as a real relief if you are struggling to make your monthly payments with a standard repayment plan. With an income dependent repayment plan, you pay anywhere between 10% and 20% of your discretionary income towards your loan payment every month. Only your discretionary income is taken into the calculation, which means you will always have money to pay off your essentials regardless of how low your salary may be. Every year you have to re-certify your income and a new monthly payment is set for the year accordingly.

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