IBR with spouse

[montessori2md]

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So, as I understand it, IBR is based on your household income, which includes your spouse if you file jointly. So I'm trying to decide if I should file taxes separately this year (I graduate in May, so repayment will start in Nov), in order to decrease the monthly payments. It is possible that if we relocate, my spouse won't work for awhile, and that's going to mean we need every penny of my salary we can keep in the short term.

 

[Twitch]

If you're spouse won't work then file jointly. If you're spouse will be working, you need to make an excel spreadsheet and run the numbers.

In the short term, the year you graduate and the year after that you should be fine filing jointly because they go by the most recent tax year filed. So tax year 2010 your income will be $0 + spouse. Tax year 2011 your income will be 1/2 * 45k + spouse. 2012 tax year (so 2013 payment year) is where the loan payments become painful since you get the full double whammy - your full $40-50k + spouse income. Probably more so if you're spouse's income is substantial. On liver rounds this evening so if this doesn't make sense, I apologize as the text is a tad blurry at this point..

 

[pinipig523]

IBR only helps you if you are not a high income earner.

IBR formula = AGI (gross income of both you and your wife) - poverty level ($10,600) x 15% = 12 month IBR plan.

 

[jlicious]

Not so fast my friend, IBR helps if you have a high debt and a modest income as well. I'm a dentist, with $297,000 in student loans, and I make about 130k a year. I graduated in 2011, and my IBR payments are currently $0. This is because I was in school in 2010, and had no income shown on 2010 tax return. My 2011 tax return will show about 50k (I worked from July to the end of the year). This will make my monthly payments about $700 for all of 2013. They will use my 2012 tax return for my payments in 2014, which will be around 1300 per month. If I make about 150k for the next 25 years, I will come out way ahead if I stay on the IBR plan.

The only thing I'm worried about is this: at the end of my 25 years on IBR, they will forgive my loans and any outstanding interest. ARE THEY GOING TO COUNT THAT AMOUNT FORGIVEN AS TAXABLE INCOME??? That will hit me hard if they do. But there are indications that they will change it so it will not be taxed. If that's the case, I will save about 200k in total payments during those 25 years, compared to the standard repayment plan.

I'm going for IBR all the way.

 

[harmnot]

Is it possible to start file jointly with IBR and change to separate filing a few years later?

 

[jlicious]

Check this out:

http://www.ibrinfo.org/faq.vp.html

 

[mrwesson]

You guys know its 10% of your income for 20 years instead of 15% over 25 right?

Legislation has changed so under the new system how does it stack up for a dental student with around 300k in loans?

 

[dianna912]

Is it possible to start file jointly with IBR and change to separate filing a few years later?

You can file jointly with IBR and change three months later, as we plan to do. (Starting repayment this December, then in Feb we will submit for a reevaluation using our new 2012 married filing separate returns.) I did call direct loans and they stated that this would work.

For the OP, filing Jointly is typically going to be a HUGE difference, esp factoring in the Lifetime Learning tax credit that only Jointly can use. (That is $2000 in your pocket.)

 

[harmnot]

You guys know its 10% of your income for 20 years instead of 15% over 25 right?

Legislation has changed so under the new system how does it stack up for a dental student with around 300k in loans?

I think the 10% only applies to new loans.

 

[mrwesson]

I think the 10% only applies to new loans.

Obama passed legislation to include all loans after 2008..

Under the recent IBR program enhancements, students who took out their first loan during or after 2008 and take out at least one additional loan during or after 2012 will now see the cap drop from 15 to 10 percent and the forgiveness period drop to 20 years. Those with older loans can still benefit from the original IBR terms.

http://www.huffingtonpost.com/jason-alderman/student-loan-repayments_b_1213787.html

 

[awval999]

Not so fast my friend, IBR helps if you have a high debt and a modest income as well. I'm a dentist, with $297,000 in student loans, and I make about 130k a year. I graduated in 2011, and my IBR payments are currently $0. This is because I was in school in 2010, and had no income shown on 2010 tax return. My 2011 tax return will show about 50k (I worked from July to the end of the year). This will make my monthly payments about $700 for all of 2013. They will use my 2012 tax return for my payments in 2014, which will be around 1300 per month. If I make about 150k for the next 25 years, I will come out way ahead if I stay on the IBR plan.

The only thing I'm worried about is this: at the end of my 25 years on IBR, they will forgive my loans and any outstanding interest. ARE THEY GOING TO COUNT THAT AMOUNT FORGIVEN AS TAXABLE INCOME??? That will hit me hard if they do. But there are indications that they will change it so it will not be taxed. If that's the case, I will save about 200k in total payments during those 25 years, compared to the standard repayment plan.

I'm going for IBR all the way.

Is it not worth it to pay a little bit extra and just pay off the loans so you don't have to worry about them rescidning this 25 years down the road?