What is "discretionary income"? (loan forgiveness question)

[chuluma]

I like one of the provisions in President Biden's student loan forgiveness announcement. It caps monthly payments to 5% of discretionary income..

But when I googled the term I get two different definitions...

Some websites tell me that it means your income minus the taxes you pay. Sounds a lot like net income to me.

But other websites define it as income minus expenses.
That is, electricity bill,, phone bill, etc.

Which one is it?

[drray23]

1. the second one

is what people in business commonly use as a definition for it. That is, how much money people can spend after they pay off their bills.
It's probably going to be defined precisely in the executive order.

[chuluma]

2. Both would be welcome, but

Even better if you are correct about the second definition being the one.

[MichMan]

7. If I make $75k per year and spend every penny, does that then make my discretionary income zero?

[drray23]

8. yes, if its necessary expenses such as rent, bills ,etc.. Thats how banks define it for loans.

However, as far as this is concerned, the government is going to use the definition posted in #4

[Mike_in_LA]

3. Oh wow!

It's the second one, first of all.

But, I did not know about that provision. That's INCREDIBLE!!!

That's almost a stealth forgiveness for virtually everyone with student loans. Very cunning! I love it.

[Johnny2X2X]

4. Discretionary Income is 1.5 times the poverty rate income for your famliy subtracted from AGI

Eg/

Say I earn $100K in AGI. I have a family of 2. Poverty rate income is $17,420 times 1.5 = $26,130.
$100,000 - $26130 = $73,870 X 5% = $3693.5 in payment per year divided by 12 equals $307.80 a month where as the old payment was $615 a month.

Say you make $60K and have a family of 3. $21960 X 1.5 = $32,940, means 5% of 60,000 - 32940 will be your yearly payment. Moves you down to $112.75 a month.

THIS IS A GAME CHANGER! I have been following this extremely closely for 18 months as I pay my loans based on my income. I even dialed into toe DoE meetings on this.

And the Income based repayment options offer total forgiveness after 20 years for undergrad and 25 years fro grad school. So what is left over after that time is totally forgiven. This is backdoor forgiveness of huge amounts for some borrowers!

THANK YOU PRESIDENT BIDEN!!!!!!!!!!! This absolutely changes my life! I will now have a reasonable payment that I can afford while I continue to live my life pay taxes, and save for retirement.

[jimfields33]

5. The 10,000 will be the interest on the loan for most

This actually is good because they will pay the original loan amount they signed for. I’m cool with that. The interest is what’s the problem.

[Johnny2X2X]

6. Actually, they've raised the discretionary from 1.5 to 2.25 times the poverty rate!

So, it's even better.

I don't think people understand all of this yet, but Joe Biden just solved the Student Loan Debt Crisis permanently.

He did it without total forgiveness. He did it without a ton of fanfare. But the math now means that virtually no one is going to have monthly payments that are unaffordable.