Disposable income - Determine Disposable Income

"Disposable income - Determine Disposable Income" submitted by SchoolGrantsfor Editorial Team and last updated on Monday 9th January 2012

Disposable income is the amount of your total (gross) salary minus any deductions required by law — such as state and/or federal income tax, child support, and mandatory retirement deductions. In the state of Texas, your employer may also charge an administrative fee of up to $10 for processing these transactions.

Administrative wage garnishment on a defaulted federal student loan may not exceed 15% of the borrower’s disposable income without the written consent of the borrower, per section 488A(a)(1) of the Higher Education Act of 1965 and the regulations at 34 CFR 682.401(b)(9). Disposable income is defined by section 488A(e) of the Higher Education Act of 1965 and the regulations at 34 CFR 682.200(b) as the income that remains after deducting any amounts required by law to be withheld. Amounts required by law to be withheld include federal, state and local taxes, FICA taxes and other wage garnishment payments.

The regulations also require the full monthly payment to “not be more than is reasonable and affordable based on the borrower’s total financial circumstances.” The determination of what is reasonable and affordable must include consideration of the borrower’s disposable income and necessary expenses such as food, housing, utilities, medical care, dependent care, work-related expenses and other federal student loan repayment obligations.

If the collection agency is unwilling to work with you on determining a reasonable and affordable payment, you should seek help from a legal aid attorney. Otherwise you’ll be forced to either find an extra $120 a month for six months in your budget or wait about 5 years to go back to college..

Trends in Personal and Family Income (See Below Table and Graph)

Trends in Personal and Family Income in California, 1989-99, in Constant 1999 Dollars
Adjusted for inflation, per capita disposable personal income increased about five percent between 1989 and 1999 for California residents. At decade’s end, the average individual had $1,199 more disposable income than in 1989.

These increases in income, however, would disappear completely if not for the economic expansion in 1998 and 1999. In fact, the personal disposable income of Californians, on average, decreased by $465 between 1989 and 1997.

Year Personal Disposable Income ($) Personal Income ($) Maiden Family Income ($)
1989  $23,996 $27,705 $46,031
1990 24,086 27,709 47,724
1991 23,443 26,747 46,393
1992 23,657 26,784 44,086
1993 23,159 26,251 44,768
1994 23,038 26,193 42,068
1995 23,262 26,588 44,936
1996 23,289 26,956 45,871
1997 23,531 27,573 46,060
1998 24,309 28,720 47,223
1999 25,195 29,910 48,338
89-97 -465 -132 29
89-99 1,199 2,205 2,307

Source: California Department of Finance; U.S. Department of Commerce, Bureau of Economic Analysis, http://www.bea.doc.gov

Notes: A family is a group of two people or more (one of whom is the householder) related by birth, marriage, or adoption and residing together; all such people (including related subfamily members) are considered as members of one family.

Data for 1994 onward are not comparable to prior historical data because of the Current Population survey redesign. 1999 data for median family income are extrapolated based on average increases over the previous three years.

How to determine an employee's disposable income?

Calculate the sum of all his or her gross earnings including: salary, overtime, vacation, sick leave, bonuses, tips and commissions. Subtract from that figure the sum of the following mandatory deductions: Federal income tax, Social Security, Medicare, state income tax, state disability tax, city/local taxes and any involuntary retirement or pension plan payments. This will give you the disposable income figure; 15% of that amount should be forwarded to EdFund. If you have more questions, please contact EdFund's Post-Default Services Unit at 800.367.1590 or via e-mail at p...@edfund.org. The U.S. Department of Education also has an excellent employer's Employer AWG Manual handbook for your reference.

Organizations Helping For Increasing Disposable Income

The U.S. Department of Health and Human Services (DHHS), through their Insure Kids Now! Program, offers free or low-cost child health insurance to families who qualify and do not have health insurance for their children. Each state is different, so to determine if you qualify, call 1-877-KIDS-NOW or go to their Web site. Even paying a small amount for insurance can increase disposable income in the long run by reducing payments for expensive doctor and/or hospital visits.

In addition to federal programs, there are a number of private organizations that offer assistance to single-parent or low-income families. CoAbode offers shared housing for mothers to reduce the cost of living expenses. Basically, CoAbode helps single mothers find roommates with other single mothers to share expenses, thus increasing disposable income. Remember the television show Kate and Allie from the 80's? This is the same as that show. CoAbode claims to reduce housing costs by one-half, as well as place children in a safer school district.

The Sunshine Lady Foundation offers the Women's Independence Scholarship Program to help survivors of domestic violence. Their goal is to provide this scholarship for women of domestic violence who want to get an education at any type of college, whether full or part time. Their goal is to help women gain employment and personal independence

Recently President Obama signed the Health Care and Education Reconciliation Act. The benefits to students will mostly be in the lending process. students with federal loans will qualify for better repayment terms. Part of the legislation signed today also improves repayment terms first enacted last summer. Loan payments will be capped at 10 percent of a student’s disposable income (it’s currently 15 percent) and any debt remaining after 20 years will be forgiven (the current threshold is 25). For public servants – including teachers, nurses, or members of the armed forces – that cap is 10 years. But, those repayment terms are only applicable for loans signed after July 1, 2014, and will not be retroactive, nor do they apply to private loans. Read More: Click here

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