Author Topic: Student Loan Forgiveness. File taxes jointly or seperately?  (Read 2081 times)

PXS1234

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Student Loan Forgiveness. File taxes jointly or seperately?
« on: January 25, 2015, 05:06:03 PM »
Two questions: 1) should I file my taxes separately or jointly with my spouse? 2) what should I sink my extra student loan money into?

Please refrain from telling me how foolish I was for taking out so many loans. I was an ill-informed and ill advised student and I know how ridiculous this amount of debt is. But, as you'll see, I think I'm going to turn out ok.

Background:
-Spouse and I both are finishing our advanced degrees this year
-I'll be starting at 80,000 and will be earning 100,000 well within 10 years
-My spouse will likely start at 60,000 and earn 70,000-80,000 within 10 years
-My debt: 350,000.  Spouse debt: 35,000
-We both qualify for income based repayment (15% of discretionary income for student loan payment), and public service loan forgiveness (remainder of balance is forgiven after 10 years and we don't pay interest on that amount).

Our student loan amounts will be (using 90,000 for me and 70,000 for spouse)


Option 1) filing jointly
MFJ-1700/month (20,400/year), 1250/month (15,000/yr)if we both max out 401ks and HSA

Amount paid over 10 years: 150,000- 204,000
Amount forgiven after 10 years:
181,000-235,000

Option 2)
MFS-me-830/month (9,960/year), 530/month (6,360/year) if I max out 401k and HSA

MFS-spouse-650/month (7,800/yr), 355/month (4,260/year) if maxing 401k

Amount paid over 10 years: 106,200-177,600
Amount forgiven after 10 years: 207,400-278,800

Knowing that my career niche allows me to take advantage of student loan forgiveness, I took out the maximum amount of loans offered to me. I have about 60,000 in the bank that was refunded back to me. Per my lender, I can use it how I see fit, including investing. I was very transparent when asking, as I don't want to break the law.

So how should I file my taxes? I know there are some serious drawbacks to filing separately.

And how should I spend by 60,000? I already have an emergency fund, cars, etc. No house or mortgage yet.

ontheroaderic

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Re: Student Loan Forgiveness. File taxes jointly or seperately?
« Reply #1 on: January 25, 2015, 06:10:35 PM »
No deduction of student loan interest if filing MFS. It's only 2500 max for MFJ anyway, but something to add to the mix.

Mazzinator

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Re: Student Loan Forgiveness. File taxes jointly or seperately?
« Reply #2 on: January 25, 2015, 06:36:09 PM »
If i'm reading this correctly...

Option 2 (and i'm guessing also with option 1) will have your wife pay more on her loans than she owes... $4,260 x 10yrs = $42,600 (she only owes $35k)

So, what if you used part of the $60k to pay off her loans now? Do you want to run these two options again but without her debt?

Also, can you run some tax numbers and see how much in taxes you will pay under each option?

PXS1234

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Re: Student Loan Forgiveness. File taxes jointly or seperately?
« Reply #3 on: January 25, 2015, 08:22:54 PM »
Thanks for the replies guys. I really appreciate the feedback, and now I have some other numbers I need to crunch.

With regard to filing status, perhaps I should do this more on a yearly basis rather than 10? This way I know our exact incomes, withholdings, etc and I can more accurately determine whether or not we would be better off filing one way or another. It's good to be future focused with regard to finances, but perhaps I'm overdoing it?

ontheroaderic

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Re: Student Loan Forgiveness. File taxes jointly or seperately?
« Reply #4 on: January 27, 2015, 09:23:23 PM »
I don't think you're overdoing it at all. I have ~74K in student loan debt and my wife has ~54K. She's 5 years into her PSLF plan so we're going to try and keep hers on that trajectory. I'm on the IBR plan but my payments don't even cover the interest, and the PSLF isn't an option for me. I don't trust that I can make payments for 20 years and at some point there not be some sort of screw up with a form that didn't get accepted, or a policy change, or something along those lines, so we're going to start aggressively paying mine off (2.5 years is the plan as it stands).

We were married this year, so this is the first time we'll file MFJ and I have no idea how it will affect our payment amount with her loans. Once mine are paid off we'll max out our retirement plans to keep that payment low for sure.

I think paying off your spouse's loan in full makes sense, and use the rest as an emergency fund, but I'm curious to see the results of your number crunching.