I have been looking around the Forums, but I have not found one that really fits the question I have. Here is my story.
I have been on the IBR plan since 2010 when I graduated from grad school. I left with about $69k in student loan debt. For years I worked at a job that paid peanuts (almost literally), and then three years ago I got a job that paid much better and qualified me for PSLF. I moved my loans to FedLoan and started applying for certification, and of course my monthly payments increased by a lot. But that was fine.
I am now re-exploring my repayment options, and I see that at this moment (single, no dependents) my monthly payment would be considerably less under the REPAYE plan. (Under IBR, my current payments are approaching what they would be on the 10-year standard repayment plan.) The reason I hesitate to switch is that there is a possibility that in the nearish future I might be married to someone who has no student loan debt and makes more money than I do. Under REPAYE, I understand that my payments would be based on our combined AGI, and that there is no cap to what those payments might be. Under IBR, however, I have been lead to understand that my payments will be capped at the 10-year standard repayment plan, even if I no longer have a partial financial hardship.
Am I correct in thinking that I should stick with the IBR plan and file jointly when/if I get married? Can you file jointly under IBR? Or more specifically, can they kick you out of the IBR plan if you file jointly and make more money? Wouldn’t my payment still be capped? I need to stay in one of the programs to qualify for PSLF.
The reasons I am having a hard time simulating this in the official estimator are that 1) it only gives me the 30-year standard repayment plan 2) it assumes I am not already in IBR and when I add a spouse and a spouse’s income, it blacks IBR out (because I would not qualify to enter that plan).
May 3, 2014
The way I see it there are three options you might want to look into.
1) Sign up for REPAYE now, and stick with it while you are married, and file jointly
2) Stick with IBR, and when you get married, file taxes SEPERATELY (this will cost more on each tax return, but only your salary will be used in calculating payments)
3) Look into aggressive repayment of your loans. Between your huge raise and getting married, your finances have improved considerably. Sometimes chasing after PSLF can actually be more expensive than just aggressively paying off the loan.
Also, this all assumes your spouse would not have federal student loans. If you both have federal loans, the math and strategy changes.
Finally, I should also comment on the notion of being “kicked out of IBR”. The only way that happens is if the standard 10 year repayment plan amount is less than what you would be expected to pay on IBR. In other words, if IBR is helping you get lower payments, you can do it. If IBR doesn’t help you, then you can’t sign up.
I want to follow up here with some additional questions:
I am married.
Both of us have massive loans. Grand total is $375K. $250K of that is mine
I am eligible for PSFL and I am 4 years out (unless it goes away). I am on RPAYE
We own a home
I am a professor making $57K. My partner makes $52K and is not eligible for PSFL and is on a better repayment plan
As we make a bit more money, the payments make huge leaps and we are starting to struggle because of both of our loans and both of our income count.
I need ways of lowering my AGI and we are seriously considering getting divorced to manage the loans so that we do not have to lump income and debt. Is that crazy?
May 3, 2014
The math does come out better for single individuals at times. If it is something you are seriously considering, you will definitely want to chat with an accountant about it.
One of the best ways to lower your AGI is to make pretax contributions to retirement accounts such as a 401(k), IRA, or HSA. This sets aside money for retirement or medical expenses AND lowers your AGI. Any tax break that is an “above the line” deduction will lower your AGI.
As you evaluate your options, I’d encourage you to check out the Department of Education’s student loan repayment estimator (found here: https://studentloans.gov/myDirectLoan/repaymentEstimator.action ) This handy tool will help you play out a number of scenarios and options on different repayment plans and tax filing options.
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