Repayment of Student Loans

[Cosmos Human]

Hypothetical question. I have been figuring out how much I need to complete my graduate degree. I will probably file for Income Based Repayment plan when I graduate...in three years if all goes as planned.

 

Of course this is based on my income at the time. If by chance I am not at the same job and somewhere else and making less money (hope not!)and my Income Based Payments show a very low amount or even zero....what happens then? No private loans will be used.

 

I used their calculator and put in some scenarios...like a very low income and the payment comes up at zero....how will the loans ever be paid back?

 

I can't figure this one out. I am going to school so I can increase my income.

[snowpuppy]

Keep in mind that your payment is based on your AGI. So if your income increases significantly, get a tax accountant to keep your AGI as low as possible.

 

The new SL proposed legislation would give you a max of 25 yrs of repayment on IBR or ICR and then the balance is wiped out. Based on your profession, if you qualify for Public Service forgiveness, you can make a payment of $0 (yes, this is a payment) for 120 months and then the balance is forgiven with no 1099 issued. The legislation that is introduced would shorten PSLF to 5 yrs.

 

Keep in mind that the new legislation was only introduced in March and has a long way to go.

[Cosmos Human]

Keep in mind that your payment is based on your AGI. So if your income increases significantly, get a tax accountant to keep your AGI as low as possible.

 

The new SL proposed legislation would give you a max of 25 yrs of repayment on IBR or ICR and then the balance is wiped out. Based on your profession, if you qualify for Public Service forgiveness, you can make a payment of $0 (yes, this is a payment) for 120 months and then the balance is forgiven with no 1099 issued. The legislation that is introduced would shorten PSLF to 5 yrs.

 

Keep in mind that the new legislation was only introduced in March and has a long way to go.

 

 

I am a social worker and hope to qualify for the Public Service Forgiveness...eventually. I had no idea that $0.00 is considered a "payment". But it is ten years! I could be dead by then...hope not! So the balance after 10 years is wiped out? And no 1099??? Wow, I had no idea.

 

ETA...how does a tax accountant keep your AGI low, especially when I don't own a home and don't have enough to itemize?

Edited July 4, 2012 by Cosmos Human

[snowpuppy]

Yes, a $0 payment is considered a payment. You can read the PSLF regs posted as a sticky.

 

The thought behind IBR/ICR is that it will help you thru the first several years of working until your income increases as you progress in your career. For some earners, especially those who have a family to support, you may never reach the full payment owed.

 

If you're going to work for a public agency, take advantage of a tax deferred savings plan offered by your employer. I also take advantage of my current HSA to reduce my income. Investing in a traditional IRA if you're eligible is also another way to lower your AGI without complicated returns.

[Cosmos Human]

Yes, a $0 payment is considered a payment. You can read the PSLF regs posted as a sticky.

 

The thought behind IBR/ICR is that it will help you thru the first several years of working until your income increases as you progress in your career. For some earners, especially those who have a family to support, you may never reach the full payment owed.

 

If you're going to work for a public agency, take advantage of a tax deferred savings plan offered by your employer. I also take advantage of my current HSA to reduce my income. Investing in a traditional IRA if you're eligible is also another way to lower your AGI without complicated returns.

 

I already have a 403( in place. I am also thinking of a traditional IRA. Will the FAFSA consider an IRA as an asset? What about a Roth IRA? I'm looking forward to the educational deduction where as I can lower my taxes by 4k. The student loans are considered payment for education. I will get a 1098? I will have to subtract the scholarship I received. I have a flex spending acct and fund it with 1k a year. I may increase that for next year as I had more medical expenses and not enough for a new pair of eyeglasses.