Anyone with experience in Federal Loan Forgiveness?

[velocistar237]

Now the devils advocate.  I could file taxes separately, get her gross income down to about 24 to 26k a year,  claim two people in our household and end up paying a total of around 21 to 24k on the loan.   However, I would then sacrifice all IRA contributions for 9 years.   

Is sacrificing 100k tax deferred income worth that 25000 dollars?

Your marginal tax rate for the IRAs would be maybe 15%, so yes, the PSLF sounds like the better route, financially, as long as all goes according to plan. You would still have the backdoor Roths.

Seems like there's enough uncertainty to make it a toss-up, though.

[LibStache]

I actually just spoke with a fed loan rep today, as I am in a similar situation.  Finishing grad school in a week, trying to decide between PSLF while contributing to early retirement, or holding off on retirement savings to go full force at SL's.  I'm choosing PSLF.

I asked her directly about the possibility of the program not existing or being changed before my 10 year/120 payment mark.  She said that once you are in the PSLF program, you're in under the terms in which you signed up.  So once you apply, qualify and are signed up with PSLF, they WILL honor the agreement and your loans will be forgiven.  Even if the program changes in the future or upcoming elections, etc,  those changes would not affect you if you're already paying under PSLF.  I made sure she clarified that three times during our conversation just to make sure. ha!

Also, loans forgiven under PSLF are NOT considered taxable income...a major plus!

[Psychstache]

Using the calculator this is what I found.   Am I missing something?

https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action#view-repayment-plans

This is with a gross income of 50,000.  Assuming I am able. To drop the gross by 60k.

Repayment Period

153 months

Initial Monthly Payment

$326

Final Monthly Payment

$518

Projected LoanForgiveness

$0

Total Interest Paid

$24,867

Total Amount Paid

$69,867

Even if the payments stay at 326 dollars for the 120 months, and nothing changes I still end up paying 40k saving only 5k which would be taxable.

I still feel like I'm missing something.

TheBrokeScientist

My big concern is that, in my experience, that calculator (and all the others you find when you google IBR), is pretty bad for some reason.

When I was looking into IBR, I used the exact calculator you linked to, plugged in my information, and was told that based on what I told them, I would not qualify for IBR and that I would need to do the standard repayment plan. That didn't seem right based on what I know, so I went ahead and sent in the app for IBR. When it was processed, I did qualify for IBR and my payment was about 40% of what the standard repayment was. I try to use the calculators from time to time when I reapply for IBR, and I can never get the right result, and everytime (reapplied 4 years thus far) it has worked out far more favorably IRL than what the calculator said.

[charis]

Yeah, I had a much higher AGI and my payment was close to initial payment you got out of the calculator.

[brokescientist]

Yeah, I had a much higher AGI and my payment was close to initial payment you got out of the calculator.

Do you mind sharing your approximate AGI at the time of the IBRs?

[brokescientist]

OK well here is the new plan. 

We are going to maximize out her 457B, 403b, and if there is anything left over her HSA.  She also has to pay 7% into her pension which is pretaxed.  She is going to file separately.   That will bring her AGI down to 7500 dollars a year.  The payments at that AGI are 0.  So, after 10 years the loan will be 100% paid off without me spending a dime. 

I will just max out my 401K, pay for living expenses and any extra cash floating around will go through a backdoor roth IRA.

Thanks everyone whom contributed to this thread for all your help.  If I should be thinking of anything else please let me know!

-TheBrokeScientist

[charis]

Make sure you run all the numbers both ways before you file separately.   The amount you save on the loan could be outweighed by higher taxes and lost IRA deductions. 

[velocistar237]

Make sure you run all the numbers both ways before you file separately.   The amount you save on the loan could be outweighed by higher taxes and lost IRA deductions.

Agreed. I like the plan, but you should still check. I pulled up the TurboTax Taxcaster, and based on the info I have, I got a $2800/year difference between the two for federal taxes. I didn't include itemized deductions, like mortgage interest and charity giving, which would reduce that difference a little bit.

And as you go along, make sure you're jumping through all the right hoops and double-check that each payment is being counted toward PSLF.

[Psychstache]

Thought I would provide some more information to chew on.

I just finished processing my renewal for IBR. Quick reminder, entering my information in the calculators told me I am probably not eligible.

Outstanding Balance - $70kish
Standard Plan Payment - $466
IBR Payment for next year - $10.08 (not a typo, ten bucks)

This is on a MFJ gross salary just inside 6 figures, but with all the tax deferred options (457, 403b, IRA, HSA) this is the result.