Discretionary income is the portion of your adjusted gross income that exceeds a federal poverty line multiplier, used by IDR plans to calculate your monthly payment.
What it means in plain English
Discretionary income is a federal IDR concept, not a generic financial planning one. It is calculated as your AGI minus a multiple of the federal poverty line for your household size, 100% on ICR, 150% on PAYE and IBR, and 225% on SAVE.
Every IDR plan caps your monthly payment at 10% to 20% of discretionary income. The poverty line floor is recalculated each January and can shift your payment when your household size changes.
Discretionary income only includes earned and reported income on your federal tax return. Tax-free benefits like NHSC and Nurse Corps awards do not count, even though they materially improve your finances.
Why it matters for NP students
Understanding discretionary income lets you forecast IDR payments under different career and family scenarios. An NP planning a family in years 3 to 5 of practice should expect lower IDR payments due to a larger household poverty floor.
It also explains why marriage filing jointly can spike IDR payments, your spouse's income enters AGI, which raises discretionary income above the floor.
On SAVE specifically, the 225% floor protects more income than any other plan, which is why SAVE produces materially lower payments for most NPs than PAYE or IBR.
How it actually works
The math behind Discretionary Income is more concrete than most borrowers realize. Here's a worked example using current 2026 numbers.
Common pitfalls
- Confusing discretionary income with take-home pay, they are different.
- Forgetting household size changes affect the floor.
- Filing jointly with a high-earning spouse and watching your IDR payment spike.
- Including Roth IRA contributions in AGI calculation, they don't reduce AGI; only Traditional IRA does.
- Not recertifying after a child's birth, missing a lower payment opportunity.
Related terms
Helpful tools
Run the numbers on your specific situation with these calculators and matching tools.