Discretionary income is the amount of income you have left after paying for basic necessities, such as taxes, everyday expenses, and household bills. It is a key factor used to calculate student loan payments on federal income-driven repayment (IDR) plans. IDR plans generally set your monthly payment as 10 percent or 15 percent of your discretionary income, so it’s important to know how to calculate your discretionary income and how it could impact your student loan payment amount.

The federal government uses your discretionary income, calculated using your state’s federal poverty guidelines, to decide how much you can afford to pay each month toward your student loans when you sign up for income-driven repayment. You’ll make those payments for 20 to 25 years, after which the remaining balance is forgiven.

To calculate discretionary income for most student loan repayment plans, the Education Department finds the correct federal poverty guideline for your location and family size, multiplies that number by 1.5, and subtracts that number from your adjusted gross income. Income-Contingent Repayment, which sets payments at 20% of discretionary income, uses 100% of the poverty line instead of 150% .

If you’re struggling to afford federal student loan payments, you may be able to lower them with an income-driven repayment plan. Your new monthly payment will be capped at 5%, 10%, 15% or 20% of your discretionary income, depending on the plan. Your eligibility will depend on the type of federal loan you have.