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Hey there, quick question. Using the Federal Student Loan website for IBR I estimated that my income would be somewhere around $55,000. I'm going into public service law, so I thought I'd go with a conservative estimate that seems to be the average for most schools. I'll most likely be married and I'd guess my husband's income would be around $35,000.

When I put in these amounts in I have the option to say that I filed my taxes jointly or separately. Separately (at $55,000) I would make payments of $410/month. Jointly (at $90,000) I would pay $850/month. Obviously, I'd pay less filing separately, but does anyone know if I might actually save more money overall (through other tax savings) if I file jointly? I do plan on having maybe 2-3 kids as well, so that will up the amount of dependents I have.

I'm also estimating that my student loans would be $130,000 or so though I don't think the amount of debt matters. Just trying to get an idea of what others think is best for paying back these potentially massive loans.

Thanks!

There is no longer a tax benefit to filing separately. In fact, in usually will cost you way more.

The fact that you lose the ability deduct child care expenses alone would probably eat up way too much $ to consider it. http://www.bankrate.com/finance/money-g ... ately.aspx

blowhard wrote:There is no longer a tax benefit to filing separately. In fact, in usually will cost you more. Furthermore, IIRC you must file jointly unless you meet a few conditions like living apart most of the year.

I heard the difference had been addressed in filing taxes, but I'm wondering more about whether it would be beneficial to file separately in order to pay less in student loan payments. Or if I would just make up the savings from those monthly payments by filing jointly (thus getting a bigger tax return). I mean the difference of paying $410 a month ($4,920 a year) and $850 a month ($10,200 a year) would have to be a pretty nice tax return to make up that difference.

TIKITEMBO wrote:

blowhard wrote:There is no longer a tax benefit to filing separately. In fact, in usually will cost you more. Furthermore, IIRC you must file jointly unless you meet a few conditions like living apart most of the year.

I heard the difference had been addressed in filing taxes, but I'm wondering more about whether it would be beneficial to file separately in order to pay less in student loan payments. Or if I would just make up the savings from those monthly payments by filing jointly (thus getting a bigger tax return). I mean the difference of paying $410 a month ($4,920 a year) and $850 a month ($10,200 a year) would have to be a pretty nice tax return to make up that difference.

I just can't believe there would be this big of a loophole. Have you looked up the rules for sure you don't have to count both of your income?

Also, there is no way anyone can answer this without seeing your returns as they would be in both situations. For some people, IBR would be better. For others, filing jointly would be. Can you switch once you begin to pay?

I may be totally off base, but isn't a general rule of thumb to file jointly if your spouse makes less than you? Again, total speculation.

I just can't believe there would be this big of a loophole.

Ha, I know right. I'm sure you've seen the calculator, but if you'd like to mess around with it with these numbers, here is what I was using. http://studentaid.ed.gov/PORTALSWebApp/ ... BRCalc.jsp

When I said filing jointly I put in $90,000 (combined income) and when I put in separately I put $55,000. We're not super fancy with stocks or anything, so that is really all the tax info we have. I put in $130,000 of loans, but it honestly doesn't matter as the payments are off income. But yeah what I see is $410 vs. $850 and having never filed jointly, I am in total bewilderment as to whether it would be better to just file separately or if in filing jointly I would somehow make up that huge difference. Do married couples really make that much in a tax return?

JamMasterJ wrote:I may be totally off base, but isn't a general rule of thumb to file jointly if your spouse makes less than you? Again, total speculation.

Hm, that would be interesting, but I wonder how much less than you they'd have to make. I would imagine there is an amount less than you that they would need to make. Not just like a dollar or something...

TIKITEMBO wrote:

I just can't believe there would be this big of a loophole.

Ha, I know right. I'm sure you've seen the calculator, but if you'd like to mess around with it with these numbers, here is what I was using. http://studentaid.ed.gov/PORTALSWebApp/ ... BRCalc.jsp

When I said filing jointly I put in $90,000 (combined income) and when I put in separately I put $55,000. We're not super fancy with stocks or anything, so that is really all the tax info we have. I put in $130,000 of loans, but it honestly doesn't matter as the payments are off income. But yeah what I see is $410 vs. $850 and having never filed jointly, I am in total bewilderment as to whether it would be better to just file separately or if in filing jointly I would somehow make up that huge difference. Do married couples really make that much in a tax return?

Make? You already made the money. Lose? That depends. The tax brackets are slightly different for married filing separately, and you lose a bunch of credits and deductions (child care, student loan interests, etc). You lose other benefits like being able to contribute to a Roth IRA (if you make over $10K filing separately, versus $166K if jointly). In general, all of the benefits and stuff are set up to push you to file jointly. But, one may be better one year, and the other better the next. It seems like you'd have to do your taxes both ways each year and see.

Hm, okay. It might be worth it for the tax breaks. I would have to make up a good 5-6 thousand extra to offset the savings I would have in filing separately when I pay my student loans, but I suppose with the extra tax breaks it is possible. Do you really not get child care tax breaks if you file separately? Also, I know you get student loan tax breaks when you're single at least. I got some last year.

TIKITEMBO wrote:Hm, okay. It might be worth it for the tax breaks. I would have to make up a good 5-6 thousand extra to offset the savings I would have in filing separately when I pay my student loans, but I suppose with the extra tax breaks it is possible. Do you really not get child care tax breaks if you file separately? Also, I know you get student loan tax breaks when you're single at least. I got some last year.

Yep, single and married jointly. Married separately doesn't get earned income credit, hope credit, lifetime learning credit, student loan interest deduction, child care credit (up to 35% of child care costs for child under 13), IRA deduction, etc. If you contribute $10K to retirement, pay $500 a month in child care, and pay the $850 a month in IBR (assuming it's all going to interest which is likely), that's $7,150 extra in taxes actually paid at the 25% income tax bracket just in those deductions alone. You'd only need to make up $4,800 to make filing jointly worth it. It could work out that separate is better, but it will vary year to year and depend on your deductions.

Also, keep in mind IBR is using your AGI, not total income. So, health insurance/home mortgage interest/real estate taxes (or the standard deduction), exemptions, etc would be deducted first.

Not to mention, you're paying more interest which then isn't compounding. As written, you'll have to pay taxes on the forgiven part when IBR discharges your debt in the end. That could be $500K in income that year you'd have to pay taxes on. Many think Congress will change this hit...but it's yet to be seen and won't be addressed until the first wave of people get hit with it. Also, Congress could repeal the entire thing if they chose in which case you'd be stuck resuming your loan payments...so less interest would mean less of a balance then too.

First, there seems to be some misinformation ITT. (1) As OP stated, if you're using IBR and you file separately once you are married, your spous' income won't be factored into you IBR payments. It's not a loophole, it was meant to be an option for people going this rout. (2) There is no tax penalty if you are using IBR in conjunction with the public interest loan forgiveness program, which is what OP is planning to do.

OP, I'm going to be in the same situation after law school, and I've also been trying to figure out which would be best. I'm thinking I'll end up having to go to an accountant or someone who specializes in taxes to run the numbers and figure it all out for me. I just don't think I know enough about the tax code to make this decision by myself. Also, what would be better one year may be the worse choice the next year...it just seems to depend heavily on one's individual circumstances.

forty-two wrote:First, there seems to be some misinformation ITT. (1) As OP stated, if you're using IBR and you file separately once you are married, your spous' income won't be factored into you IBR payments. It's not a loophole, it was meant to be an option for people going this rout. (2) There is no tax penalty if you are using IBR in conjunction with the public interest loan forgiveness program, which is what OP is planning to do.

OP, I'm going to be in the same situation after law school, and I've also been trying to figure out which would be best. I'm thinking I'll end up having to go to an accountant or someone who specializes in taxes to run the numbers and figure it all out for me. I just don't think I know enough about the tax code to make this decision by myself. Also, what would be better one year may be the worse choice the next year...it just seems to depend heavily on one's individual circumstances.

I missed the PSLF part...but everything else I posted still holds true. Congress could still repeal it anytime they wanted. There is no grandfather clause. And, it's a loophole in the same sense we call all other tax provisions loopholes. They are nearly all intentional, I didn't say it was illegal or anything.

The OP is going to acquire $130,000 in student loan debt and have 2-3 children? With a husband who makes $35,000? Forget the tax question; why isn't this a recipe for permanent personal financial disaster?

Don't do this until you have discussed the consequences with a neutral financial advisor.

BeautifulSW, It's a bit more doable in that I'm going the public interest route. Honestly the amount of debt becomes pretty irrelevant if you use the IBR calculator on the government's website. You can take out $100,000 or $200,000 and they still only go off 10% of your income.

So that means that wheter your debt is $100,000 or if it's $200,00 and you make $90,000 a year then you pay $9,000 in loan repayments a year. And like it's been mentioned here with PSLF (Public Service Loan Forgiveness) you can work in a PI job and have the government's loans forgiven after 10 years (sans interest payments). $81,000 a year to live on, make house payments, and raise a kid or two is (although TLS leads one to believe otherwise) quite doable and certainly there are some tax breaks that help with that situation. And after 10 years you don't have those loan payments anyway.


Forty-two, I think I'll be looking for an accountant as well. There are too many moving variables in this and tax breaks I can't be sure I'd qualify for and at what amount it becomes in my best interest to go one way or the other.

I don't claim to be an expert on IBR but you might want to consider a few points:

-the 10 year schedule requires that you obtain and maintain qualifying public interest employment. You seem awfully certain that a suitable job will be yours upon graduation. You may discover, however, that PI jobs are not so easily got as all that. There are and will be many more public interest job applicants than positions. If you don't get that job, you will still be stuck owing a great deal of money.

-even if you do manage to land a PI job, once you are there, you will be stuck there regardless of any other circumstances in your life because if you leave, that student loan debt will come crashing down on you. So if your boss is a jerk, if your children have needs, if your husband wants to move, in all these cases, barring winning the lottery, you will have to keep plugging away, day after day, for ten years.

-even if you land your PI job, there are no guarantees that the position will endure. Public funding is being cut everywhere and I have seen legal aid jobs (for instance) terminated and offices closed.

Think hard whether you shouldn't do everything you can to keep your student loan debt to something manageable even if all these things come to pass, in other words, around $50,000.

-even if you land your PI job, there's no guarantee that the IBR program itself will continue to be funded. It could easily be the victim of budget cutting in the face of monsterous deficits and declining tax revenues.

I'm not suffering any delusion that PI jobs are hard to get. I actually spoke with a woman who graduated from Vandy and had to wait two years to get off the waiting list for a job at a State's Attorney's office. You do seem to have some common misunderstandings about the program that I'll clear up.

1) You have to make 10 years of payments (not necessarily continuous). The plan requires 120 payments not 10 consecutive years so your notion that I would be "stuck" in a job if I was lucky enough to get one isn't correct. You can take a break for awhile and then resume payments. As someone who has also had to look into deferring loans with the gov't, I believe you have 3 years economic hardship (kind of a catch-all), 3 years unemployment, and 3 years of school if you for some reason can't pay and need to defer. Obviously you're not making payments at the point and that's sucky but it just means you still have X many number of payments to make of that 120 once you find a new gig.

2)The Income-Based part of the whole deal means that if I quit my job/move/have to leave then my payments go down as well. They are Income-Based as long as I am making some type of payment. Whether there is a minimum I have to pay I'm not sure, but if you mess around with that calculator you'll see that the lower your income, the lower your payments are. You just have to be in any PI job not necessarily one that requires a JD and I'd be happy to work with that if need be until I found something else.

3) True, there is no guarantee that funding will last forever, but there's no guarantee for biglaw or many other types of law either.

Do the IBR amounts depend on how you file, or whether you are married?
If the latter (as I suspect), you may want to consider not getting legally married. Just do a ceremony in a church (and write up some complicated contract which makes you submit to binding arbitration if you separate, and say you're homosexual so you can get benefits for your spouse from your work- does that work?), and forget the legal stuff.

Wow. Well, it's your life so good luck with it. Just keep in mind that you are contemplating borrowing a great deal of money with the declared intent that someone will say that you don't have to pay it back and with the clear understanding that, if called upon to pay it back, you probably won't be able to do so.

As I say, good luck with that.

BeautifulSW wrote:Wow. Well, it's your life so good luck with it. Just keep in mind that you are contemplating borrowing a great deal of money with the declared intent that someone will say that you don't have to pay it back and with the clear understanding that, if called upon to pay it back, you probably won't be able to do so.

As I say, good luck with that.

Your posts make it seem like you have never heard of the IBR before... a very standard route that an abundance of PI lawyers take. Weird to criticize such a standard practice of loan repayment.

BlakcMajikc wrote:

BeautifulSW wrote:Wow. Well, it's your life so good luck with it. Just keep in mind that you are contemplating borrowing a great deal of money with the declared intent that someone will say that you don't have to pay it back and with the clear understanding that, if called upon to pay it back, you probably won't be able to do so.

As I say, good luck with that.

Your posts make it seem like you have never heard of the IBR before... a very standard route that an abundance of PI lawyers take. Weird to criticize such a standard practice of loan repayment.

The program only began in 2007 (or more accurately, for '07 grads). So the furthest along anyone can possibly be in the IBR program is 4 years in, meaning they're still at least 6 years away from testing out the government's procedures for forgiving the remaining balance. We don't know what's going to happen at that point. To my knowledge the procedures themselves haven't been written yet. That said it's still going to be the perhaps default option, given that average debt for private JD programs is now more than 100K and the average starting salary is around 60K for new lawyers. And that's only for the 62% of law grads who are finding work as lawyers... the nonlaw jobs would almost definitely lower that average further if they were counted. That also doesn't factor in all the unemployed grads who don't even find nonlaw work. Public policy discussions about debt forgiveness are really starting to gain traction as more and more people realize the huge number of people who will be unable to pay back their loans without IBR.