Paying for college can be expensive, but there are several types of financial aid available to students. Some aid awards are determined based on your family’s financial situation. Known as need-based financial aid, amounts are awarded based on several factors, and in some cases, it may not need to be repaid.
If you’re unsure whether you’ll qualify for need-based aid, how much you’ll receive, or whether you need to pay it back, here’s what you need to know.
Defining Need-Based Financial Aid
To put it simply, need-based financial aid is money to help students pay for the costs of attending college that’s awarded based on their financial situation.
Depending on your circumstances, you may qualify for federal or state aid or aid from the institution you attend. Typically, need-based aid is determined based on the information provided on the Free Application for Federal Student Aid, or FAFSA®.
Most college students take advantage of what’s offered in their federal financial aid package, which may include the following types of need-based federal financial aid.
💡 Quick Tip: Often, the main goal of refinancing is to lower the interest rate on your student loans — federal and/or private — by taking out one loan with a new rate to replace your existing loans. Refinancing makes sense if you qualify for a lower rate and you don’t plan to use federal repayment programs or protections.
Direct Subsidized Student Loans
The federal government will subsidize (or cover) any interest that accrues on Direct Subsidized Loans for undergraduate students while they are enrolled in school at least half-time and during the six-month grace period after graduation.
After the grace period, interest will start to accrue. This is unlike Direct Unsubsidized Loans, which begin accruing interest as soon as they are disbursed.
There is a limit to how much a student can borrow in federal loans and the amount they borrow cannot exceed their financial need. The maximum amount first-year undergraduate students can borrow cannot exceed $5,500 (or $9,500 for independent students), $3,500 of which is in subsidized loans. The maximum amount you can borrow increases each year you’re enrolled.
Pell Grants
Pell Grants are for undergraduate students who have demonstrated exceptional financial need.They depend on factors such as your expected family contribution, your enrollment status, and how much your schooling will cost.
The maximum amount may vary — it’s $7,395 for the 2023-24 academic year. It may also be possible for students to receive up to 150% of their scheduled award, though qualification requirements will vary.
To be eligible for the Pell Grant, students will need to fill out the FAFSA each year that they are enrolled in undergraduate studies.
Work-Study Programs
The federal work-study program offers part-time jobs for undergraduate or graduate students based on their financial needs. The goal is to provide the opportunity for students to earn money towards education-related expenses and one that’s related to their field of study. There may be jobs both on- and off-campus and the program is administered by participating schools.
The type of job you get and how much you earn will be influenced by factors like when you apply and how much funding your school has. At a minimum, program participants will be paid at least the current federal minimum wage.
If you are awarded work-study as a part of your federal aid package, you can’t earn an amount that’s more than what was awarded.
What’s the Difference Between Need-Based Financial Aid and Ones Based on Merit?
Whereas need-based financial aid is based on the student and their family’s financial circumstances, merit-based aid doesn’t consider finances. Instead, this type of financial aid looks at things like standardized test scores or grade point average, or GPA. In some cases, financial aid is based on other merits such as your class rank.
Some scholarships are based on your class rank. Usually, scholarships are awarded based on merit, though there are plenty based on financial need. Before applying for any financial aid, it’s important to look at the eligibility requirements so you know whether you’ll qualify.
Even though the point of aid based on financial need is to help you cover college expenses you otherwise wouldn’t be able to afford, you may have to pay some of it back. For instance, the Pell Grant or other types of grants don’t need to be repaid. Scholarships are another type of aid that recipients are not required to repay. If you participate in the work-study program, the money you’ve earned is also yours.
However, Direct Subsidized Loans will need to be repaid. You won’t, however, need to pay any interest while you’re enrolled at least half-time since the government will cover that. Direct Unsubsidized loans (which aren’t awarded based on need) will also need to be repaid and borrowers will be responsible for the full amount of accrued interest.
In some cases, you may not need to pay back the entire amount if you qualify for student loan forgiveness. There are several types of forgiveness with varying eligibility requirements that depend on factors such as your career path.
For instance, the Public Service Loan Forgiveness, or PSLF program, will forgive the outstanding balance on a Direct Loan if you made 120 monthly qualifying payments. These payments need to be paid while you’re working full-time for a qualifying employer and under a qualifying repayment plan.
To see whether you qualify for a forgiveness program, it may be helpful to speak with a loan officer.
Should I Apply for Need-Based Financial Aid?
There’s nothing wrong with seeing what you may qualify for. Filling out the FAFSA will allow you to determine how much federal aid you qualify for. Some schools will also use the FAFSA to determine additional aid awards.
The FAFSA will require information about you and your family’s financial situation to help determine how much aid you’ll receive. There is also the CSS Profile, which some colleges may use to determine financial aid awards. To fill out the CSS Profile there is a small fee.
That being said, you may not receive enough financial aid even if you qualify. For instance, Pell Grants are typically given on a first-come, first-served basis. It may help to submit the FAFSA as soon as possible. That way, you may be able to find out sooner what you may qualify for. You can submit your FAFSA as soon as October 1 for the following school year.
The Takeaway
Even if you’re not sure if you qualify for need-based aid from the federal government, you may be able to qualify for aid at the state, local or college level. There is also merit-based aid in the form of scholarships and some grants.
Many organizations also award grants and scholarships for specific demographics and those pursuing certain fields. It’s far better to accept free money through grants and scholarships before taking out any loans.
If you do end up borrowing money to pay for college, you may want to consider refinancing your student loans. Doing so can help qualifying borrowers reduce their interest rate, which could lower the amount paid over the life of the loan. Note that refinancing federal loans eliminates them from borrower protections and benefits like PSLF and income-driven repayment plans.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.
Often seen as a stepping stone between an undergraduate and graduate program, postbaccalaureate programs can help prepare students for a new or different area of study. But, more than just a leg up, a postbaccalaureate program can be a major financial commitment. The average cost of a postbacc program is $20,000 to $40,000.
So, just what is this program, and how can it benefit students? Read on to learn the benefits, drawbacks, and financing behind a postbaccalaureate degree.
What Is a Postbaccalaureate Degree?
A postbaccalaureate degree or program is typically one or two years of study beyond a bachelor’s degree. Students may enroll in a postbaccalaureate program for a variety of reasons, including:
• Completing a second bachelor’s degree.
• Working towards a graduate certificate.
• Taking prerequisite courses required for admission into a graduate program.
A postbaccalaureate program isn’t a graduate degree, but students may enroll in the one to two-year programs before heading off to a grad program.
Applying to a postbaccalaureate program will differ from school to school, but students can generally expect to submit their transcripts, as well as test scores, recommendations, and an essay.
Sometimes called post-bacc, these programs are popular among college graduates who hope to enroll in medical school. According to the American Association of Medical Colleges, postbaccalaureate medical programs focus on science, biology, and other subjects required before med school. They are used to enhance an applicant’s application and hopefully increase their chances of getting accepted.
Here’s why post-bacc programs might help a student hoping to apply to medical school:
• It offers the appropriate prerequisites. If a student wasn’t on a pre-med track in undergrad, but they decide they want to pursue a graduate program in medicine, a post-bacc program makes it easier to take all the required courses before applying to med school.
• It gives them an opportunity to improve their grades. If a pre-med student graduated with a low GPA, they might elect to retake some of the courses in a post-bacc program to boost their numbers. It gives them not only a chance to review material they might’ve missed, but also a way to enhance their application with better grades.
• It can help strengthen an application. If a student is reapplying to medical school, they might first attend a post-bacc program to get an edge up on the competition.
• It can be a supporting supplement for students with weaker MCAT scores. If a student has taken the MCAT multiple times with borderline scores, getting strong marks in a post-bacc program can be a helpful ace up their sleeve in the application. It can show a commitment to the area of study, despite low test scores.
Going to a post-bacc program might be the right fit for some students looking to enter a medical graduate program, but is by no means a requirement.
Pros of a Postbaccalaureate Program
A postbaccalaureate program can offer many benefits for the right student. Here are some of the pros they can expect on their way to a graduate program:
• Flexible studying. Postbaccalaureate students have a lot of flexibility in the program. They can usually choose to study full-time or part-time, based on their availability and schedule. Full-time programs are typically a year long and part-time programs take closer to two years.
• Linkage programs. Many postbaccalaureate programs are housed within a medical school. While participating in the school’s postbaccalaureate program won’t guarantee admission in its medical program, it could give a student a leg up in the application process.
• MCAT prep. Some, but not all, postbaccalaureate programs include MCAT tutoring and prep in admission and pricing. For some students, this can be a great opportunity to raise test scores.
• Networking and experience. In addition to courses, some postbaccalaureate programs will also offer speciality programming and networking opportunities for students. This can be an opportunity to learn more about medical specialties from events and network with fellow students.
• An introduction, without the long term commitment. A postbaccalaureate program can give students a taste of what medical school might be like. However, instead of studying for years, it could be just a couple months or two years at most. If a student decides med school just isn’t for them during a postbaccalaureate program, it’s less time and money spent.
Cons of a Postbaccalaureate
While a post-bacc program will offer many benefits, these programs do have their fair share of drawbacks. Consider these cons before attending a postbaccalaureate program:
• Not all programs offer federal aid. Postbaccalaureate programs can be pricey, and when it comes to financial aid, some students will be on their own to find a way to pay. Some, but not all, post-bacc programs will have federal aid packages for students to consider. Because a post-bacc is considered a second degree, prospective students may need to rely on private student loans to pay for their program.
• They could be overkill. While postbaccalaureates can be a great refresher on subjects for students, the demanding curriculum could be too demanding academically and financially. In some cases, students might choose simply to take a few prerequisite courses at a community college instead of paying for a post-bacc program.
• Losing out on experience. Postbaccalaureate programs offer their own benefits and experience, but enrolling could mean missing out on real-world experiences or work experiences.
• Post-bacc programs aren’t all built the same. Students shouldn’t expect the same experience from every post-bacc program. Different schools will offer different focuses and programs. Some are more geared towards enhancing a student’s academic record, while others are actively seeking to engage economically disadvantaged or underrepresented students.
• It doesn’t guarantee admission. Post-bacc medical programs can give students a leg up when it comes to boosting their GPAs and MCAT prep, but they are not a guarantee that a student will gain admission to medical school. If a student is considering enrolling in a postbaccalaureate program solely for admissions purposes, they might want to rethink their motivation.
The Takeaway
Postbaccalaureate programs are second-degree programs but do not result in a graduate degree. They are often used as a stepping stone for people who are making a career transition or are interested in pursuing higher education, such as medical school.
The choice to enroll in a post-bacc program is deeply personal, just like how a student decides to pay for school. Whether or not a person chooses to head straight into a postbaccalaureate program immediately after undergrad or not, keeping an eye on their student loans is important.
Depending on a student’s loan structure, students may be expected to make loan payments while enrolled in a post-bacc program.
Some students may find that refinancing student loan debt can help them reduce their interest rates. Refinancing federal student loans eliminates them from federal benefits, such as student loan forgiveness and deferment, so it’s not an appropriate option for everyone.
For students interested in refinancing their current student loans, SoFi offers flexible terms, competitive rates, and no hidden fees. It takes just two minutes to see if you prequalify and your credit score will not be impacted during the prequalification stage.
See if you prequalify for student loan refinancing with SoFi.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Thinking about taking a road trip? The rising cost of gas might put a dent in your budget if you’re not careful. But how much will you spend on gas for a trip? What should your budget be?
Using a trip cost calculator can help you determine what you are likely to spend filling up your tank on a longer trip. Then you can use that information to decide whether it’s more cost-effective to drive, take a train or bus, or fly.
Let’s look not only at a gasoline cost trip calculator table, but also why you should calculate how much you’ll spend on gas and how you can save money filling up at the pump.
Why Use a Gas Cost Trip Estimator
You may think nothing of filling up your gas tank every few weeks when you’re only driving to work and the store. But consider how much gas you’d use for a trip from, let’s say, San Diego to New York City. With gas prices on the rise, understanding what it will cost you to fuel up for an entire trip can help you better budget your expenses.
Using a gas trip cost calculator can help you figure out how much of your entire trip budget will be dedicated to fueling up.
💡 Quick Tip: Online tools make tracking your spending a breeze: You can easily set up budgets, then get instant updates on your progress, spot upcoming bills, analyze your spending habits, and more.
How to Calculate Your Gas Cost Trip
To figure out how much gas will cost for a road trip, you can, of course, use a trip cost calculator. You’ll need to input basic details, like your type of car (different sizes and types of cars burn gas at different rates) and your route, and the calculator can estimate with real-time gas prices.
But a simple method is to look at your route and the total distance in miles, and divide this number by the number of miles per gallon your vehicle gets. (You can check your owner’s manual to find this out if you don’t already know). This will tell you the number of gallons of gas you’ll need for the entire trip.
Now you’ll need to know the price of gas so you can multiply it times the number of gallons you need. Since gas prices by state may vary wildly, you might take an average of prices found in five places along the way. Tools like Gas Buddy let you search for gas prices in a given city, so you can use this for research.
Gas Cost Trip Calculator Table
Let’s use the process I outlined above to illustrate how you can be your own gas calculator for trip costs.
Distance from San Diego to NYC
2,760 miles
Miles per gallon
22
2,760/22
125 gallons
Average gas price:
• San Diego: $4.57
• Albuquerque: $3.09
• Saint Louis: $2.82
• Indianapolis: $2.99
• Philadelphia: $2.93
Average: $3.28
125 gallons x $3.28
$410 gas budget
As you can see, it would cost about $410 for gas for the entire trip. Of course, this is based on an average cost of gas, and prices will fluctuate over time and in different towns and cities.
💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.
Examples of Gas Cost Trips
Let’s look at a few other examples of trips and how much they would cost in gas.
Distance from Los Angeles to Seattle
1,335 miles
Miles per gallon
22
1,335/22
61 gallons
Average gas price:
• Los Angeles: $4.44
• Stockton: $4.45
• Sacramento: $4.99
• Medford: $4.05
• Portland: $4.99
Average: $4.58
61 gallons x $4.58
$279 gas budget
Phoenix to Dallas
1,067 miles
Miles per gallon
22
1.067/22
48.5
Average gas price:
• Phoenix: $3.13
• Benson: $3.61
• Deming: $3.45
• Fort Stockton: $3.15
• Abilene: $2.79
Average: $3.23
48.5 gallons x $3.23
$157
Reasons to Calculate Your Gas Cost
So why should you bother using a road trip cost calculator? Well, most people don’t have unlimited funds when it comes to taking a road trip, so for starters, it can help you see how much you’d spend. You might decide it’s not worth driving if the cost exceeds what you’d pay for a flight, bus, or train ride.
Even if you’re not planning a big trip, looking at how much it costs to drive on a tank of gas can be helpful for maintaining your month-to-month budget. Once you understand how much you’re spending on gas, you might explore how to improve gas mileage to get more bang for your buck or you might limit how often you drive to save money.
If you’re planning a road trip, use a tool that shows you exactly where the cheapest gas can be found. You might be able to save $.10 or more a gallon simply by planning ahead. There are even some trip fuel cost calculators that will help you plan where to stop based on gas prices.
Consider How You Pay
There are different types of credit cards that can help you save at the pump. Branded gas credit cards often offer rewards that will shave off a few cents per gallon or give you a bonus after you’ve charged a certain amount of purchases.
You might also consider a cash back credit card that gives you cash or credits for your purchases once you’ve hit a certain threshold.
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Look into Alternative Transportation
You may be quick to rely on cars to get around, but there are often other overlooked methods of transportation to consider. Whether it’s a bus, train, Uber, or plane, you might be able to save money by leaving your car at home.
Another way to stick to your travel budget? A money tracker app, which can help you keep tabs on where your money is going while you’re on the road.
Only Use Premium if Necessary
Most cars run just fine on regular unleaded gas, which can be significantly cheaper per gallon than premium versions, especially if you’re on a long trip. Check your car manufacturer’s recommendations to see if you can use regular unleaded gas.
Drive an Empty Car
The heavier your car is, the more gas it burns. So if you’ve been lugging around something heavy unnecessarily, consider leaving the load at home before you drive.
Who Should Save Money on Gas
The real question is, who shouldn’t save money on gas? We could all benefit by keeping a little extra cash in our pockets.
That said, if you’re planning a long road trip, you’ll probably want to explore ways to improve gas mileage and to save on gas. Also if you have a long commute to work, you might be spending more on gas than necessary.
The Takeaway
Paying attention to how much gas costs, particularly for a road trip or long commute, is just smart financial planning. Whether you use an online version or crunch the numbers on a piece of paper, a gas trip cost calculator can help you figure out how much you may want to budget for fill-ups.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
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FAQ
How do I calculate gas cost for a trip?
To calculate gas for a long road trip, divide the number of miles of the route by the miles per gallon your car gets. This is the number of gallons you’ll need to drive the distance. Then, average the cost of gas on your route and multiply this times the number of gallons to get the total cost of gas for your trip.
How much would 1 mile of gas cost?
Divide the cost per gallon by the number of miles per gallon your car will go. For example, if you pay $3.99 per gallon and your car gets 22 miles per gallon, driving one mile would cost about $.18.
How do you calculate fuel to destination?
To calculate how much fuel you’ll need to get to your destination, divide the number of miles of the remaining route by the miles per gallon your car gets. Then, average the cost of gas on your route and multiply this times the number of gallons to get the total cost of gas for your trip.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Discretionary income is defined as the cash you have available to spend after your necessary payments are covered. Those necessities are typically made up of basic living expenses, such as housing, utilities, food, healthcare, and insurance costs. (In some cases, minimum payments toward debt may be included as well.)
So what does discretionary income equal in daily life? It’s the post-tax money you can put toward things like eating out, entertainment, travel, clothing, electronics, and gym memberships. You might think of discretionary income as paying for the wants in life vs. the needs.
In this guide, you’ll learn more about the definition of discretionary income, read examples of this type of income and how to use it, and understand how to calculate this money in your budget. It can be an important number to know, as you’ll see, especially if you’re repaying student loans.
Key Points
• Discretionary income is the money left after paying for necessary expenses like housing, utilities, food, healthcare, and insurance.
• It can be used for non-essential expenses like eating out, entertainment, travel, clothing, and electronics.
• Discretionary income is important for budgeting and can be used to pay down debt or save for goals like vacations or home improvements.
• Some people may not have discretionary income if they struggle to cover essential expenses or have variable income.
• Calculating discretionary income involves subtracting necessary expenses from take-home pay; it’s important to have a budget to manage that money effectively.
What Is Discretionary Income?
Discretionary income is the amount of post-tax income that is left over after you have paid for all the essentials of daily life. These expenses include your mortgage or rent, utilities, and car payments or bills, as well as food, healthcare, and occasionally clothing (if it is needed, not just wanted). To phrase it another way, no, a Netflix subscription or your AM latte isn’t a “necessity.”
It’s worth noting that not everyone has discretionary income; some people struggle just to cover the “essentials” when it comes to paying their bills.
• Gig, seasonal, and part-time workers: The concept of discretionary income can get a little more complicated if you aren’t a person who gets a steady paycheck. If you have a variable income due to the nature of your work (maybe you’re a gig worker or freelancer), you’ll need to make sure you have enough money set aside in savings if you have a shortfall.
If your income dips and you can’t pay for the basics in life, let alone have some discretionary income, that could mean you’ll get hit with overdraft or late fees or wind up with excessive credit card debt to pay off.
• Discretionary income and savings: Also worth noting (warning, buzzkill ahead): Discretionary income isn’t just to be spent on cool stuff and fun experiences. It’s wise to put a portion of it toward savings. Some people will include debt payments as part of the “necessities” bucket of your budget; others will say that a portion of discretionary income is what goes toward debt.
One key kind of debt to consider in this scenario: student loans. There are four programs for repaying federal educational loans in which your discretionary income can be a factor. It’s vital to make sure you have the right income-driven repayment plan (IDR) that works for your financial situation when it comes to paying down federal student loans.
What if despite your best efforts to pay back your loans, you are still feeling the financial pinch? It’s a common situation as basic bills and student loans conspire to vacuum up all your moolah. Refinancing your student loans to a lower rate can help free up additional discretionary income each month.
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7 Examples of Discretionary Income and Expenses
Now that you know what discretionary income is, it’s worth mentioning that the phrase is sometimes used interchangeably with discretionary expenses. To be clear, discretionary income is what is spent on discretionary expenses.
And what are discretionary expense examples? Here are several:
1. Entertainment and Eating Out
This category includes such expenses as dining out, getting drinks, splurge-y takeout food (pizza delivery, we’re looking at you!), and fancy coffees. In terms of entertainment, the following would be considered discretionary: Concert, play, and movie tickets; museum admission; books, magazines, and streaming services; and similar costs.
2. Vacations and Travel
Taking a vacation, whether you go to the other side of the planet or an hour’s drive away, is not a necessity, despite how you may feel about it.
3. Luxury Items
These expenses could be anything from a pricey sportscar to designer clothes to jewelry to wine. While clothing and a car may be necessities in life, when you pay extra for top-notch prestige brands, you enter the realm of discretionary expenses.
4. Memberships and Hobbies
Yes, joining a gym or taking up a musical instrument are admirable things. But they are not vital to your survival. For this reason, things like yoga or Pilates classes, crafting supplies, and similar expenses are considered discretionary.
5. Personal Care
A basic haircut or bottle of shampoo may not be discretionary, but pricey blowouts, manicures, massages, skincare items, and the like are.
6. Upgrading Items
If your current phone is functional but you get the latest one, that’s a discretionary expense. The same holds true for being bored with your couch and getting a new one or remodeling your bathroom just because.
7. Gifts
Of course you want to show you care for your loved ones. But buying presents for others isn’t vital to survival, so this should be earmarked as a discretionary expense.
If you are wondering how income vs. disposable income stacks up, here’s the difference. Income refers to all the funds you have coming in, whether from your salary, any side hustles, interest or dividends, and other sources.
Disposable income, however, is what is left of your post-tax money after you have paid for your necessities, as described above. If, say, you follow the popular 50/30/20 budget rule, 50% of your money goes toward needs (necessities), 30% would go toward wants (discretionary expenses), and 20% toward saving. Together, those account for all of your after-tax money, aka your disposable income.
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How Is Discretionary Income Used?
Discretionary income can be used for a number of fun things, from buying the latest mobile phone to taking a pal out for their birthday to spending a day at a theme park with the kids. You could also use discretionary income to make a future dream come true. You could, say, contribute to a fund for your next vacation or the down payment on a house. Another way to allocate discretionary income is to use it for home improvement projects, especially ones that could increase the value of your home. Heck, you could even save it in your bank account, plain and simple, if you wanted.
Also, it’s wise to recognize the fact that some people may need to use their discretionary money for an income-based repayment plan to pay down student loan debt. There may not be a lot of wiggle room there. Others must put this money toward paying down their credit card bills; those high-interest debts can grow over time and do damage to your credit score.
(One tip for those who get paid every other week: When you get an “extra” paycheck that doesn’t need to go to bills, consider it discretionary income that you could put toward an extra payment on debts or to toss into savings.)
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How to Calculate Discretionary Income
One way to calculate your discretionary income is to calculate your take-home pay each month and subtract your “fixed” or “necessary expenses” from that. The money you have left over is your discretionary income which can be used for the kinds of expenses we highlighted above.
What if, when you tally your discretionary income, you wound up with a negative number? This means you do not have any earnings left over to address discretionary expenses. In this situation, it’s important to keep spending under control and look for ways to free up funds.
One other angle to consider about this topic: If you have student loans to pay off, discretionary income can be used for an income-based repayment plan.The federal government offers income-based plans, and each one has its own discretionary income requirements.
These programs often put your student loan payments notably under what you might otherwise pay. Some of the factors taken into consideration are income and family size; you also must meet certain requirements to qualify for these repayment plans. You can see how the options stack up by plugging your details into the federal government’s loan simulator tool.
What Is A Good Amount of Discretionary Income?
When you’re considering how much discretionary income you should have, you might want to consult a discretionary income calculator. Many options for these calculators are available online.
Hopefully you have some money left each month after you’ve paid your basic living expenses. As you look at your overall budget and discretionary income, you might benefit from exploring the 50/30/20 rule, as noted above.
Example of Using 50/30/20 Rule to Calculate Discretionary Income
If your monthly net (take-home) income was $5,000, $2,500 would be siphoned off for your “needs,” $1,500 would be allotted for discretionary income, and $1,000 would go toward savings and investments. This can be a really helpful way to understand how to “bucket” your money and keep your finances healthy.
As you think about discretionary income and related concepts, you’ll probably realize how important it is to have a budget; this will inform where your money has to go as well as what’s left after those bills have been paid. It will help keep you on track for your discretionary income, reining in excessive spending and guiding you toward saving well and staying out of debt. There are a variety of different budget methods; try a couple and see which works best for you.
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Discretionary vs. Disposable Income
The phrases “discretionary income” and “disposable income” might be used interchangeably in conversations among your friends, but — sorry — that’s not necessarily correct.
• Disposable income is how much money you have left from your earnings after tax withholdings are taken out but before deductions are also removed. That’s likely going to be a much higher number than your discretionary income.
• Discretionary income is the amount left after your taxes and deductions (like health insurance, retirement contributions, etc.) are taken out, and then you’ve paid all of your essential living expenses (home, utilities, food, car).
It’s important to be aware that these definitions may be used differently in some circumstances, like if a court is going to garnish your wages or back-owed tax payments during a bankruptcy consideration. These are distressing circumstances, yes, but they happen every day to regular people, so it’s good to have the vocabulary down if you ever face these situations.
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FAQ
What is the meaning of discretionary income?
Discretionary income is defined as the cash you have available to spend after your taxes are deducted and necessary payments are covered.
What is an example of discretionary income?
Here’s an example of discretionary income: If your post-tax earnings were $100K and you spent $50K on necessities and $20K went into your retirement savings, the remaining $30K would be discretionary income.
What is the difference between discretionary and disposable income?
Discretionary income is the money that you spend on non-essential items, or the wants in your life vs. needs. Disposable income, however, is your total after-tax income.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
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Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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If you need a loan for college, you may be wondering whether a private student loan is the right choice for you. And, once you’ve made the decision to take out a student loan, you might want to know the differences between federal vs. private student loans and the deadlines associated with each.
Keep reading to learn all that information and more, so you can determine how and when to apply for student loans.
What Are Private Student Loans?
Private student loans are student loans that are offered by private lenders like banks or credit unions to help people pay for the costs associated with college. Similar to applying for an auto loan or mortgage, private student loans require a loan application and approval from the lender.
Depending on how much money you need for school, you can borrow a set amount from a private lender. The amount they grant you ultimately depends on financial factors like your income, credit score, and the credit history of yourself and/or your cosigner (if applicable).
Unlike federal student loans with fixed interest rates and terms, the fees, repayment plans, and interest rates for private student loans are set by the individual lender. Because of this, it’s important to “shop around” with private lenders until you find rates and terms that meet your financial needs.
Private student loans can help pay for tuition, books and supplies, transportation, and fees. Using your student loan for housing or room and board expenses is also an option.
The question of whether or not you should get a student loan is quite personal and depends on your unique financial situation. In a nation where, in 2023, the average federal student loan debt per borrower is $37,338 and the average private student loan debt per borrower is $54,921, taking out student loans is clearly a popular decision, but whether it’s the right decision is a different story.
For starters, when deciding whether it’s a good idea to take on college debt, it helps to ask whether a degree would be valued in your desired career.
In addition, there are a few other steps you can take to see if taking out a student loan will be worth it in the long run:
• Look up the tuition, room, board, and other costs of attending your desired college(s).
• Create a budget to determine whether you can afford those costs after factoring in financial alternatives like scholarships, savings, family help, etc.
• Research salary levels in your desired field to see if the expected compensation will cover the cost of student loan payments over time.
• Assess how comfortably you can live at your expected income level, factoring in payment estimates from the student loan calculator.
Once you’ve whittled down this information, you should have a better idea of whether taking out student loans is aligned with your long-term financial goals.
Exploring ways to pay for school without taking on student loan debt is the first line of defense in college financial planning.
Since this isn’t always an option, you can minimize your reliance on loans by taking the following steps:
1. Pull funds from a 529 college savings plan that you or your guardians may have set up for future college costs.
2. Apply for scholarships and grants to offset the cost of tuition, room, board and other expenses.
3. Fill out a Free Application for Federal Student Aid (FAFSA®) form to start the process of securing federal grants or federal student loans and use this money to cover as much of your tuition as possible.
5. Offset your remaining college costs with unsubsidized federal loans.
6. Opt out of PLUS loans if possible, as their interest rates and origination fees can be steep.
Finally, once you’ve exhausted the six options above, you can turn to a private student loan to cover any remaining costs associated with your college education.
When Is a Private Student Loan a Good Option?
There are some instances where a private student loan might be an option worth considering:
• You’d like to cover the gap between your financial aid package or scholarship and your college expenses.
• You don’t have specific financial need requirements, but still want help subsidizing the cost of college.
• You’re looking to shop around with lenders to compare multiple loan options before selecting.
• You have strong credit or a cosigner with a strong credit score who could potentially help you qualify for a more competitive interest rate.
Generally speaking, it’s wise to consider federal student loans first. If you then decide a private student loan is the right option for you, you might be wondering when to apply for private loans.
You can apply for a private student loan directly from the desired lender’s website. It’s wise to apply after you’ve made your final school decision and once you know how much you need to borrow. This prevents you from having to submit multiple student loan applications for all the schools you’re considering.
You need to check with your lender about repayment plans (if any).
There is no prepayment penalty fee.
There could be a prepayment penalty fee.
You may be eligible for loan forgiveness if you work in public service.
Many private lenders don’t offer loan forgiveness.
Deadlines for Federal Student Loans
To apply for federal student loans, students must fill out the FAFSA. There are three separate deadlines to consider:
1. The College or University Deadline
College deadlines for filling out the FAFSA will vary based on the school itself, but typically occur before the academic year begins. Each college will have its own FAFSA deadline, so visiting its financial aid website for this information is an important first step.
To fill out the 2023–24 FAFSA form itself, you can use your 2021 tax information to apply as early as October 1, 2022, and it closes June 30, 2024.
2. The State Deadline
Your home state sets the second deadline when it comes to FAFSA applications. The deadlines are listed on the FAFSA form itself, or you can visit the state deadline list on StudentAid.gov.
3. The Federal Deadline
The U.S. Department of Education sets the final deadline on the list. This entity is in charge of FAFSA and their website will feature the 2023-24 FAFSA application until June 30, 2024.
Federal student aid programs have a limited amount of funds available, so the sooner you can submit your application and avoid encroaching on the hard deadlines, the better.
The 2024-25 FAFSA application will be available in December 2023.
When applying for student loans from a private lender, there isn’t typically a set deadline in place. Still, this doesn’t necessarily mean you want to wait until the last minute, since you’ll need plenty of time before tuition, housing, and other fees are due to secure the funds from your student loan.
Many private student loan lenders can approve your application in a few minutes or less, but it can sometimes take up to two weeks for full approval. That’s why it’s smart to keep your eyes on your school’s payment deadlines and ensure your funds will be disbursed on time.
Named a Best Private Student Loans
Company by U.S. News & World Report.
What Type of Private Student Loan May Be Right for You?
At the end of the day, there are ways to find the right private student loan for your unique circumstances. All it takes is some shopping around.
Considering the following factors can help you determine which type of private student loan makes the most sense for your personal situation:
• Interest rates and fees
• Payment flexibility
• Lender credibility
• Ability to refinance or release a co-signer
• Whether the lender sells their loans
• Repayment benefits
• If the lender is a preferred partner of your college or university of choice (this information is usually found on the school’s website)
Because the rates and terms on a private student loan are determined by the individual lender and are impacted based on the borrower’s personal financial history, finding a private student loan may require a bit of shopping around.
Looking for Private Student Loan Options?
If you’re looking for a private student loan lender who understands the value of your education and thinks no-fees is a normal part of the application process, consider a private student loan with SoFi.
You can check your rate online and select one of four flexible repayment options on a loan that fits your budget.
The Takeaway
There are several factors that determine whether you should get a student loan — from what you can afford after factoring in financial alternatives like scholarships, savings, family help, etc. to how comfortably you can live with your student loan payments after graduation.
Generally speaking, it’s wise to apply for federal student loans first and turn to private student loans once you’ve exhausted other alternatives. This is because private student loans are not required to follow the same rules as federal student loans, and may lack benefits like income-driven repayment plans or the option to apply for Public Service Loan Forgiveness.
Private student loans are offered by private lenders like banks or online lenders to help people pay for college. You can apply for a private student loan by shopping around and comparing interest rates, fees, repayment options, and other features on the lenders’ websites.
The deadlines for federal student loans are based on the college you plan to attend, the federal FAFSA deadline for the academic year you’re applying for, and your state’s FAFSA deadline. Private student loans do not have an application deadline, but it’s a good idea to apply well before tuition and other college expenses become due.
Find out more about using a private student loan from SoFi to help pay for college.
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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
