Biden Will Cut Discretionary Income: What is it?  Why Student Loan Repayment Matters

Prospective student borrowers will also get some relief from the Biden administration’s federal student loan forgiveness plan.

This relief will come in smaller and more manageable monthly payments. The plan includes reducing the percentage of what people have to pay from their discretionary income toward student loan repayments.

What is discretionary income? Discretionary income is the money left over after paying taxes and basic living expenses. It can be used however you want – dining out, paying for streaming services or tickets to movies or sporting events, for example.

Don’t confuse this with disposable income, which is the money you have after you’ve only paid taxes. Because you haven’t paid for your basic needs yet, disposable income is greater than discretionary income.

How would Biden’s plan cut discretionary income?

The idea is to increase the amount of what is considered non-discretionary income, which is the income needed to cover necessary expenses, including taxes, food and shelter and keep it from paying off.

By increasing non-discretionary income, discretionary income shrinks. The White House says it “guarantees that no borrower who earns below 225 percent of the federal poverty level — about the annual equivalent of a $15 minimum wage for a single borrower — will not have to make a monthly payment.”

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Rep. Rashida Tlaib, D-Mich., center, and her son Adam, left, attend a rally to call on President Joe Biden to cancel student debt near the White House in Washington on July 27.

Rep. Rashida Tlaib, D-Mich., center, and her son Adam, left, attend a rally to call on President Joe Biden to cancel student debt near the White House in Washington on July 27.

What else is available that will lower my monthly payments to make them more manageable?

The other relief comes from reducing the percentage of your discretionary income that determines what you pay monthly.

Borrowers will only have to pay 5% instead of 10% of their discretionary income each month on student loans. Those with graduate and student loans will pay a weighted average rate.

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When will more details about the student debt relief proposal be released?

The proposed regulations will be published in the coming days on Federal Register website and the public is invited to comment on the draft rule for 30 days.

Medora Lee is a money, markets and personal finance reporter for USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal financial tips and business news every Monday through Friday morning.

This article originally appeared on USA TODAY: What is discretionary income? How it applies to the Biden student loan plan

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