Filing Zero Income Tax Return - 4th year med student

[Somethingelse9]

Fourth year medical student here. I have heard many times how important it is for income based repayment to file taxes as a fourth year med student, even though I have zero income.

Can someone who has done this tell me how to go about this? My school sent me a 1098T form - do I submit this? I have also heard about the 1040EZ form. I'm useless at this stuff and really need direction. Thanks!

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[maxxor]

1.TurboTax Free https://turbotax.intuit.com/personal-taxes/online/free-edition.jsp In the parts that ask about W2/1099 compensation, just say you have none/no income.

2. Who is telling you that the $0 return is a big deal for IBR? I think this is old information. When I applied for IBR, it was in September, and I was a resident with an income. There is a question you must fill out that says something to the extent of "has your income significantly changed from last year? If so, you need to provide verification". Now, unless your servicer allows you to file documents after graduation but before residency starts, you will have an income, when previously you didn't, which as far as I can tell is "significantly changed". My loan servicer did not, and in fact told me that submitting/processing IBR paperwork early would "end my grace period". Perhaps MyFedLoan lied to me about that, but that's what I was told when I inquired about filing during that golden period without income before start of residency.

I don't know anyone who managed to get a $0 IBR/PAYE payment this year since the servicers have added that question. Old threads on this site and elsewhere may have mentioned that IBR/PAYE allowed for $0 payment the first year, then a "half payment" based off your half-years income tax return. Now the servicers ask for a paystub and multiply it times the frequency of pay (e.g., 2 weeks amount * 26) to determine your annual income and then base payments off that.

 

[RangerBob]

Use H&R block free-file.

1.TurboTax Free https://turbotax.intuit.com/personal-taxes/online/free-edition.jsp In the parts that ask about W2/1099 compensation, just say you have none/no income.

2. Who is telling you that the $0 return is a big deal for IBR? I think this is old information. When I applied for IBR, it was in September, and I was a resident with an income. There is a question you must fill out that says something to the extent of "has your income significantly changed from last year? If so, you need to provide verification". Now, unless your servicer allows you to file documents after graduation but before residency starts, you will have an income, when previously you didn't, which as far as I can tell is "significantly changed". My loan servicer did not, and in fact told me that submitting/processing IBR paperwork early would "end my grace period". Perhaps MyFedLoan lied to me about that, but that's what I was told when I inquired about filing during that golden period without income before start of residency.

I don't know anyone who managed to get a $0 IBR/PAYE payment this year since the servicers have added that question. Old threads on this site and elsewhere may have mentioned that IBR/PAYE allowed for $0 payment the first year, then a "half payment" based off your half-years income tax return. Now the servicers ask for a paystub and multiply it times the frequency of pay (e.g., 2 weeks amount * 26) to determine your annual income and then base payments off that.

There's another thread about #2. But I know lots of people that had $0 payments, and I could've if I wanted (FedLoan didn't ask me for current paystubs--I volunteered it because I thought my income was significantly different). They actually told me I could choose whether to submit my current paystub or use my prior (~$5,000) tax return.

I was curious and wanted to get to the bottom of things so I send e-mails to both FedLoan and the Dept of Education specifically asking what "significantly changed" means since so many service reps gave me different answers. I haven't heard back from FedLoan, but the Dept of Education basically said that provision was actually meant to protect you in the event your income drops, and also that it's entirely up to your servicer (even though the Dept of Education owns and would, if eligible, forgive your loans). I found that all very interesting.

Still, your servicer can ask for current documentation of income if they believe your income has changed. And then you need to provide it. And I wouldn't recommend "playing the game" if you want loan forgiveness.

Also--applying for IBR won't end your grace period. If it did, it'd be great, because you could apply after graduating (loans no longer in in-school deferment) but before starting residency, so there'd be no question your current income is $0. I actually asked if I could waive my grace period (I wanted six more month's worth of PSLF-eligible payments) and the answer was a very solid "no." You are not allowed to waive your grace period--there's no way around it (unless you consolidate).

 

[Spydra]

I was curious and wanted to get to the bottom of things so I send e-mails to both FedLoan and the Dept of Education specifically asking what "significantly changed" means since so many service reps gave me different answers. I haven't heard back from FedLoan, but the Dept of Education basically said that provision was actually meant to protect you in the event your income drops, and also that it's entirely up to your servicer (even though the Dept of Education owns and would, if eligible, forgive your loans). I found that all very interesting.

That was their answer? I wondered about this to and my servicer said whatever I think is significant and just to decide if I want to submit last years taxes or current paystubs. I can't believe the Dept of Ed didn't have a more solid answer. The vagueness does seem like it would help in case of unemployment or taking a pay cut to switch jobs though.

Also--applying for IBR won't end your grace period. If it did, it'd be great, because you could apply after graduating (loans no longer in in-school deferment) but before starting residency, so there'd be no question your current income is $0. I actually asked if I could waive my grace period (I wanted six more month's worth of PSLF-eligible payments) and the answer was a very solid "no." You are not allowed to waive your grace period--there's no way around it (unless you consolidate).

This was also my experience. I applied for IBR when I still had 2 months on my grace period and my servicer told me they received all of the documents and didn't need anything else, but they couldn't initiate the process until my grace period officially ended. Applying early just meant I would avoid any possible late fees or struggling to make a high payment because I was running around last minute gathering the stuff needed to apply and then waiting for them to process it.

 

[maxxor]

@RangerBob I think our different experiences reflect how nobody at MyFedLoan actually knows the answer. I asked multiple people and called multiple times only to get the answers I gave above.

 

[RangerBob]

That was their answer? I wondered about this to and my servicer said whatever I think is significant and just to decide if I want to submit last years taxes or current paystubs. I can't believe the Dept of Ed didn't have a more solid answer. The vagueness does seem like it would help in case of unemployment or taking a pay cut to switch jobs though.

This was also my experience. I applied for IBR when I still had 2 months on my grace period and my servicer told me they received all of the documents and didn't need anything else, but they couldn't initiate the process until my grace period officially ended. Applying early just meant I would avoid any possible late fees or struggling to make a high payment because I was running around last minute gathering the stuff needed to apply and then waiting for them to process it.

Here's the Dept of Education's answer to me, which is consistent with what a friend of mine got when they asked:

"Thank you for your inquiry about federal student aid.

The U.S. Department of Education (ED) employs federal loan servicers. The loan servicer is responsible for administering the account in accordance with federal student loan legislation and regulations.

Under ED's income-driven repayment plans, the borrower's monthly payment is based on his or her most recent adjusted gross income (AGI). If the borrower's current income is significantly different than the most recent AGI, the loan servicer may use other documentation to verify income.

Although program regulations do not define what constitutes significantly different income, this provision is intended to assist borrowers whose income has decreased significantly from the prior tax year due to a loss of or change in employment. For example, if a borrower whose most recent AGI was $50,000 is now employed with a salary of $30,000, the borrower's current income would be considered significantly different than his or her most recent AGI.

If you have additional questions, please contact your loan servicer.

Under the Public Service Loan Forgiveness (PSLF) Program, the outstanding balance of a William D. Ford Federal Direct Loan (Direct Loan) account can be forgiven after the borrower has made 120 monthly payments while employed full-time by a public service organization or serving in a full-time AmeriCorps or Peace Corps position. You can access more information about the PSLF Program, including information about eligible employment, at StudentAid.gov/publicservice.

For specific information about PSLF eligibility, please contact FedLoan Servicing, our PSLF Program loan servicer. You may call FedLoan Servicing at 1-855-265-4038 or e-mail the servicer by clicking on "Contact Us" at the FedLoan Servicing website at www.myfedloan.org.

We hope this information is helpful.

E-Mail Unit
StudentAid.gov
Federal Student Aid"

 

[RangerBob]

@RangerBob I think our different experiences reflect how nobody at MyFedLoan actually knows the answer. I asked multiple people and called multiple times only to get the answers I gave above.

Couldn't agree more.

I consolidated some of my loans because my 2009 loans were FFELP and weren't direct loans (ie., not PSLF-eligible). Since I have some GradPlus loans at the higher rate, I didn't want to consolidate everything since that would eliminate my ability to selectively pay off lower-interest rate loans.

At first I consolidated my 2 unsubsidized Stafford loans and 1 GradPLus from 2009. The rate I got was probably 7.4 or something because the GradPlus was bigger, but now there were all eligible for PSLF (if it is still around...). When I learned you can consolidate subsidized Stafford loans and they would stay subsidized (you end up with a subsidized and unsubsidized portion to your consolidation loan) then I added the subsidized loan (there's a certain timeframe where you can add loans to the consolidation loan).

They consolidated my loan, but never adjusted the rate, which would've been .1 or .2% lower (basic high-school math showed that). I kept communicating for about 3 months and I can't even could how many different phone calls, including with supervisors, went through two "reviews," yet nothing happened--they said the consolidation was done right. Aside from the fact any kid that knows how to average percentages could figure out it wasn't, my parents are mathemeticians, so I didn't let it go.

Fortunately at my residency orientation, we the medical school's financial aid officer say she would help us with whatever we needed, and hound loan servicers if it would help us. So I went to her and she contacted a friend at FedLoan who knew what she was doing (senior manager I think--it was someone fairly high up), who not only realized A) it was done wrong, but also realized B) why. So they fixed my loan (retroactively--I appreciated that) and apparently they fixed the consolidation process to avoid this same incident in the future.

In case that was too long to read--I basically made ~50 phone calls over 5-6 months at least and kept getting different answers, etc., and in the end knowing someone who knew someone at FedLoan solved the problem.

From my understanding, FedLoan actually has the best/most knowledgeable service reps when you call...