Question about PAYE

[dentalstudent334]

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Hello everyone,

just had a quick question about this repayment option that a lot of people seem to be using or considering using. From what I know, its 10% of your income for 20 years. A lot of people have been talking about this tax bomb. What is this exactly? What I'm getting is that the loan amount you have left over at the end of the 20 years is not actually forgiven but taxed as income. Is this something that you have to pay right away in one payment? So let's say I have 100k leftover from my loan, this means that roughly 64k(living in CA) will be added to my taxes that year? And once I pay that off I'm good? Sorry I don't know too much of the technical financial phrasing so if you could explain it in simpler terms that would be great!

 

[Rlow04]

That's the idea. But 64k/100k seems a little high of a tax rate. The highest tax federal tax rate is 40%, does California have another 20% of state tax?

There are definitely payment plans for large tax bills, but ideally you should be setting aside some money each month for that tax bill. Or, once you're at your peak earnings you pay down all your loans.

I just interviewed a dental attorney for almost 2 hours on how to move from associateship to ownership for my podcast. There was so much good stuff, the average dentist can definitely own a practice and will do so much better over the course of their career because of it


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[SigmaFS]

Please feel free to watch this YouTube video where I discuss the various federal income driven repayment programs:

 

[whaleofatale]

Hello everyone,

just had a quick question about this repayment option that a lot of people seem to be using or considering using. From what I know, its 10% of your income for 20 years. A lot of people have been talking about this tax bomb. What is this exactly? What I'm getting is that the loan amount you have left over at the end of the 20 years is not actually forgiven but taxed as income. Is this something that you have to pay right away in one payment? So let's say I have 100k leftover from my loan, this means that roughly 64k(living in CA) will be added to my taxes that year? And once I pay that off I'm good? Sorry I don't know too much of the technical financial phrasing so if you could explain it in simpler terms that would be great!

If you reach the 20-year term on PAYE, any remaining loan balance is forgiven. However, the forgiven amount is considered taxable income and must be reported on your next year's income tax return. This student loan calculator was created for dental students and does include a forgiveness estimate based on your reported income at the start of your career. I believe it assumes a 2% salary increase per year.

 

[dentalstudent334]

Thanks for the info. What do you guys think is the likelihood of PAYE still being available in 2020?

 

[whaleofatale]

Thanks for the info. What do you guys think is the likelihood of PAYE still being available in 2020?

Congress is unlikely to cancel this plan for current borrowers. If things are changed it is likely to affect new borrowers only.