What IBR income...

[BeatboxMD]

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I posted this in financial aid forum as well as I was unsure which forum to use for this question as it seemed appropriate for both, and wanted maximum exposure. Mods please delete this thread if this isn't the right forum : )

Hey all, sorry for yet another IBR question but I checked the related threads and it doesn't look like this particular topic was expounded on much.

My previous payment was zero dollars since I was unemployed but since reapplying this year I have gotten a job. Now, my previous tax return (2013) reflects my salary for roughly a few months (I worked for only a few months for that year). When I go to reapply for the program it fetches the previous year's tax return information from the IRS (as you know). But then it asks you if your income is different.

How do I answer this? My income is no different than before but are they asking something else? Since my wage is the same am I okay to answer no to this question and use the previous year's tax return as usual or do they want more information from me? I hope this question makes sense and people understand what I am asking.

Thanks for any feedback and again, sorry if this is something that is posted about a lot, like I said I did a search and didn't find much.

 

[dpmd]

Your yearly income will indeed be different even if your hourly pay is the same. Whether they will do anything to you when it becomes obvious next year when you reapply with a whole year's worth of income is another story.

 

[BeatboxMD]

Well, what do you think? If I fill it out incorrectly would they seek the money that I would have repaid had I applied with a different amount? Is the discrepancy that obvious that they would do something? I'm not seeking legal advice, just looking for some second opinions and general thoughts.

I don't want to misinterpret this and fill it out incorrectly since it is a federal form, I believe, but I also do not want to needlessly throw money away either (since remainder of loans are forgiven after so many payments).

 

[dpmd]

No one knows the answer to that, but a program that is administered by the government who in several years is going to have to start forgiving all these huge loans strikes me as just the kind of program to look back and decide you filled something out wrong and now you aren't eligible. However it also seem like the kind of program where only some people get caught. You have to decide if the benefit is worth the risk

 

[mvenus929]

If you answer that your income is different, you will have to provide documentation that it is, in fact, different. I faced this issue when I actually applied for IBR, because I did it 5 months into intern year, and thus had a different income than my tax return reflected (which was 0, because I was a student and not working). They required a letter from my program, pay stub, etc, showing my yearly or monthly income.

 

[Impromptu]

I was an early user of IBR. I called and asked them that question. At the time my loan servicer they said they weren't prepared to use any other income information other than my last tax return. I think they have changed since then.

Plus, now that I have a real job, I stopped doing income based repayment and instead refinanced with SoFi.

 

[BeatboxMD]

No one knows the answer to that, but a program that is administered by the government who in several years is going to have to start forgiving all these huge loans strikes me as just the kind of program to look back and decide you filled something out wrong and now you aren't eligible. However it also seem like the kind of program where only some people get caught. You have to decide if the benefit is worth the risk

I know, that is why I am having such a hard time with the decision. It seems that with these servicers the left hand never knows what the right hand is doing and the odds of them going back and checking something potentially in error seems slim. I feel like that if it is bothering me so much I should just submit new information so I can have peace of mind, but I can't bring myself to do it because I'll feel like such a sucker.

If you answer that your income is different, you will have to provide documentation that it is, in fact, different. I faced this issue when I actually applied for IBR, because I did it 5 months into intern year, and thus had a different income than my tax return reflected (which was 0, because I was a student and not working). They required a letter from my program, pay stub, etc, showing my yearly or monthly income.

Didn't you consider just proceeding with the application using your tax return and have a year's worth of zero payments? What made you volunteer this extra information so readily if you don't mind me asking?

 

[RangerBob]

When I called my loan servicer about this they at first told me I could choose whichever option I wanted (using prior year's tax return with half a year's worth of income, or submit my current documentation of income). Then another rep told me to submit current documentation of income. Then another said to use the old tax return...

One of my friends e-mailed the Dept of Education and their answer was basically you can submit proof of your current income, if you want. Or you can use your prior year's tax return, even if they're different.

It's kind of a big mess. But I agree with dpmd that PSLF may very well look back at your payments and tax records and see if you dotted your i's and crossed your t's. Or maybe they won't--you do file every year to get your PSLF-eligible payments on the record, with the idea that your servicer is certifying those payments you made and qualified for PSLF.

So it's sort of a gamble as to what you want to do--if you can afford it, just send them your current paystubs. Personally I still think PSLF is a big gamble and unlikely to stick around in it's current form, but it would sure be nice if it does...

 

[dpmd]

When I called my loan servicer about this they at first told me I could choose whichever option I wanted (using prior year's tax return with half a year's worth of income, or submit my current documentation of income). Then another rep told me to submit current documentation of income. Then another said to use the old tax return...

One of my friends e-mailed the Dept of Education and their answer was basically you can submit proof of your current income, if you want. Or you can use your prior year's tax return, even if they're different.

It's kind of a big mess. But I agree with dpmd that PSLF may very well look back at your payments and tax records and see if you dotted your i's and crossed your t's. Or maybe they won't--you do file every year to get your PSLF-eligible payments on the record, with the idea that your servicer is certifying those payments you made and qualified for PSLF.

So it's sort of a gamble as to what you want to do--if you can afford it, just send them your current paystubs. Personally I still think PSLF is a big gamble and unlikely to stick around in it's current form, but it would sure be nice if it does...

Yeah, if you are doing IBR for the gamble of the PSLF payoff and the program happens to stick around for when you qualify it would be pretty ****ty to miss out on it just because you wanted to cheat the system a little (and make no mistake, you are cheating the system a little if you pretend a half year of income on a tax return accurately reflects the next full year of income). If, on the other hand you plan to pay your debt down aggressively once you are out of training then the little cheat is fine, except it increases the amount you are going to end up paying.

 

[Mad Jack]

Don't screw around with anything the IRS will be looking at down the road.

 

[RangerBob]

Yeah, if you are doing IBR for the gamble of the PSLF payoff and the program happens to stick around for when you qualify it would be pretty ****ty to miss out on it just because you wanted to cheat the system a little (and make no mistake, you are cheating the system a little if you pretend a half year of income on a tax return accurately reflects the next full year of income). If, on the other hand you plan to pay your debt down aggressively once you are out of training then the little cheat is fine, except it increases the amount you are going to end up paying.

I'm not arguing with you here (I actually made that same exact argument on another thread addressing this topic)--I definitely agree it's not worth the risk.

But one issue is that loan servicers and even the Dept of Education are saying it doesn't matter. They don't have an official definition for what a "different" income is. I asked--do they mean $2000, $5000, $10,000+/year difference in salary? I tried to get a straight answer from them as far as when your prior year's tax return is considered to still accurately reflect your current income. Everyone gave me a different answer.

Another thing is the IRS isn't involved (at least not currently) with looking into whether your IBR application was done correctly. The IRS just processes the loan forgiveness (cancellation of debt form, presumably) your loan servicer sends you and then either taxes you (IBR/PAYE) or doesn't (PSLF). It's your loan servicer that has ultimate responsibility for forgiveness of your loan, and it's their responsibility (and ours) to make sure it's all done kosher.

I wouldn't be surprised if for big sum PSLF amounts (such as would be the case with physicians) if the Department of Education (which actually owns our loans) does more background checking into whether we filed properly, made proper payments, etc. But the IRS wouldn't be doing that--they'll just audit you if they think you claimed too little forgiven debt (since you get taxed on IBR/PAYE debt cancellation).

Still--point is to play as safe as you can.

 

[dpmd]

I'm not arguing with you here (I actually made that same exact argument on another thread addressing this topic)--I definitely agree it's not worth the risk.

But one issue is that loan servicers and even the Dept of Education are saying it doesn't matter. They don't have an official definition for what a "different" income is. I asked--do they mean $2000, $5000, $10,000+/year difference in salary? I tried to get a straight answer from them as far as when your prior year's tax return is considered to still accurately reflect your current income. Everyone gave me a different answer.

Another thing is the IRS isn't involved (at least not currently) with looking into whether your IBR application was done correctly. The IRS just processes the loan forgiveness (cancellation of debt form, presumably) your loan servicer sends you and then either taxes you (IBR/PAYE) or doesn't (PSLF). It's your loan servicer that has ultimate responsibility for forgiveness of your loan, and it's their responsibility (and ours) to make sure it's all done kosher.

I wouldn't be surprised if for big sum PSLF amounts (such as would be the case with physicians) if the Department of Education (which actually owns our loans) does more background checking into whether we filed properly, made proper payments, etc. But the IRS wouldn't be doing that--they'll just audit you if they think you claimed too little forgiven debt (since you get taxed on IBR/PAYE debt cancellation).

Still--point is to play as safe as you can.

Yeah. I am thinking of the old days when servicers offered all the great incentives to entice people but then a bunch of people had issues qualifying. Just know from reading about it online so maybe they just did dumb stuff and were misplacing blame, but the cynical part of me wouldn't put it past them to have vague rules then still ding you for not following them.

 

[mvenus929]

Didn't you consider just proceeding with the application using your tax return and have a year's worth of zero payments? What made you volunteer this extra information so readily if you don't mind me asking?

I did consider it. And I'm 99% sure a good portion of my classmates did just that. But I couldn't morally bring myself to lie on my application, and I figured that it would bite me somewhere down the road if I did. So, I went for the option that would have me pay an extra $250 per month for a year.

 

[maxxor]

Didn't you consider just proceeding with the application using your tax return and have a year's worth of zero payments? What made you volunteer this extra information so readily if you don't mind me asking?

Did you actually get $0 payments? I don't think anyone I know did that. I initially tried, and the servicer was like "either provide your paystub or provide documentation of how you are surviving?"

 

[RangerBob]

Out of curiosity, I e-mailed the Dept of Education and my loan servicer about this. Here's what the Dept of Education said:

"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"

I found the bolded text interesting. But ultimately it's up to the loan servicer (which as I mentioned before, gave me many different answers." I asked for someone in legal or higher up in IBR processing to try and get a straight answer, but we'll see what the loan servicer tells me.

Regardless I would recommend:
1) Not "playing the game" if you have any intention to qualify for loan forgiveness, (it only saves ~$2,000-$6,000, which granted is still a fair amount of money, but totally doable on a resident salary unless you're in SF or NYC perhaps)
2) If you do "play the game," and are hoping for loan forgiveness, at the very least get it in writing from your servicer that you can use your old and "significantly lower" tax return rather than your current income. That way if they come back at you 10 years down the road when you apply for forgiveness, you have it in writing that you did what they told you to do.
3) See #1.