@readysetmillionaire I finally have gotten through reading your thread all about REPAYE. And I appreciate the time you have spent in doing some numbers/math for me here. I think if we are to stay the course at least all or mostly on IBR, looking to switch to REPAYE makes a lot of sense for lowering AGI to 10% and the subsidizing. My one hesitation is that instead of aggressively paying it off, I don't want to have to always suppress our income for the next 19 years by always lowering our AGI. I do however, like the protection the IBR/and REPAYE have for things like losing job. Which is the main reason that in our current situation my husband wants to stay on it instead of going to a standard repayment plan. If something happens we are stuck, or go bankrupt if we can't pay the $1500+ payment a month.
If he does continue on his current job, we expect that with his new MBA degree that in 10 years his income should increase to close to 200K. Of course you can't predict the future. But I guess you try to plan the best you can and then adapt.
I'm not telling you whether to aggressively pay down loans or aggressively utilize REPAYE, but I do want to clear up this false "suppressing income" misconception that you (and others) share.
Under no circumstances ever, not in a million years, am I going to pass up an income opportunity. Just this year I am going to begin refereeing high school athletics (basketball and maybe football) and I'm going to publish 3-4 ebooks. I'm also going to try and bill 1700-1800 hours at work, which will hopefully lead to a raise next year.
So if I make around $10,000 more next year (which is my goal), my total income will be $57,500. I will put $18,000 in 401k, $5,500 in a Traditional IRA, $1,500 in an HSA. I will also still get the student loan interest deduction. All in all, by increasing income $10,000, my retirement savings will go from $18k per year to $25k; my savings rate will go from 46% to almost 50%; and, even with an income increase of $10,000, my student loan payment will increase by just $34/month.
Hopefully this example illustrates why you, nor your husband, should not think "Oh, we are in REPAYE, we need to reduce income." Not at all. You should always, always, 100% of the time seek to maximize income.
But what you do need to do is use tax sheltered savings accounts that will allow three things: (1) keep your student loan payments low; (2) increase retirement savings; (3) increase savings rate.
Furthermore, you have to remember that contribution limits are adjusted for inflation (more complicated than that, but that's the basics of it). The 401k contribution limit was $9,500 in 1996, $10,500 in 2001, $15,000 in 2006, $16,500 in 2011, and it's now $18,000 in 2016. These limits will keep going up. Hell, in 10 years they might be close to $25,000(!!!!).
Teen persuasion just did a great job on the math, but I'll take it a little more detailed:
$200,000 income in 2026
- $25,000 401k
- $5,000 in deductions
- $70,000 (complete guesstimate of 150% poverty level for family of 7)
=
"Disposable Income" of $100,000
x .1
=
$10,000
/12 monthly payments
=
$833 per month.
I'm sure that seems like a lot now, but that would be 4.2% of your gross income (i.e., way lower than 10%). And those payments still wouldn't cover interest, so you'd be getting an interest subsidy as well.
Sure, as kids leave home and you can't claim them anymore, your payments will go up a little. But it's a slight amount.
Again, I'm not trying to convince you one way or another. The point of my whole post is that you being in REPAYE does not mean you should reduce income, it means you should strategically use the tax code to your advantage in order to keep your payments low.