Author Topic: My in-laws are on IBR for forgiveness & make $200k/yr... will this work?  (Read 2767 times)

lackofstache

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My FIL contacted me and stated because his wife is a SAHW and has no income she's eligible for the William D Ford Act forgiveness program. He is under the assumption, that although they file jointly, they can pay next to or absolutely nothing each month on her $25k+ student loans for 20 years & then walk away. They file taxes jointly & he makes a solid salary of $200k+.

Does anyone have more knowledge on this and care to shed some light on whether this is an instance where a permanent SAH spouse could forget about paying anything back towards Federal Loans or whether my FIL is mistaken?

Any responses appreciated.

kendallf

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Re: My in-laws are on IBR for forgiveness & make $200k/yr... will this work?
« Reply #1 on: January 27, 2016, 01:50:47 PM »
The short answer is that your FIL is mistaken. 

The longer answer is that, if he were to file separately from his wife, she would be able to count her (non)income for the IBR Adjusted Gross Income calculation.  Their family size would stay the same for the poverty line calculation used to define disposable income and calculate the IBR payment amount.  See this article for some of the regulations involved.
 
http://www.fastweb.com/financial-aid/articles/seeking-clarification-of-income-based-repayment-for-married-student-loan-borrowers

 The catch is the tax penalty that applies due to filing separately.  Over many years, my guess is that the increase in taxes would be worse than just paying the loan.  There are almost no circumstances in which MFS is desirable.  Quick "napkin math" using the rates shown here; the deductions would likely make this worse:

http://www.bankrate.com/finance/taxes/tax-brackets.aspx

MFJ gross tax on $200k, excluding deductions: ~43k
MFS gross tax on $200k, excluding deductions: ~54k

Tabaxus

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Re: My in-laws are on IBR for forgiveness & make $200k/yr... will this work?
« Reply #2 on: January 29, 2016, 08:29:41 AM »
In addition to the above, at least currently there is a cancellation of debt income hit on the standard IBR forgiveness (waived for PSLF).

And, of course, there's the "don't be an effing deadbeat" aspect of this.  If this works, 20 years is a long time for someone to throw together legislation to put the screws on deadbeats. 

dandarc

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Re: My in-laws are on IBR for forgiveness & make $200k/yr... will this work?
« Reply #3 on: January 29, 2016, 08:42:07 AM »
Regardless of the rules about IBR $200K+ ought to be able to clear a $25K debt in less than a year, I'd think.  Why not just pay it?

You might point him to here:

https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action


And filing separately is probably a dumb move as kendallf points out.  Save like $3K/year on loan payments only to pay $11K/year more in taxes!