... Can I do math? (IBR/PAYE) Forum

[TheKisSquared]

WELL. I was doing some math today (as one is known to do) and I came to the below conclusion. Please someone correct me if I'm wrong.

I do not plan on doing Biglaw, I work at a small (plaintiff-side) firm currently and want to do PI after law school. A low T14 has gotten me about half tuition (not including COL) and I'm waiting to hear back re aid from CCN. If my job after law school isn't PI/LRAP eligible (something similar to the firm I work in now) I would go on PAYE/IBR.

Because of this, the amount of money I actually pay towards the loan is 'capped' at (Salary - ~$17000 - [deductions])*2 + [tax bomb], right? So if I make 60k, contribute a bit to a retirement plan, the *worst case scenario* amount I pay towards the loan is basically capped at $80k (plus the tax bomb)? Even if I make 100k, it only goes up to about 160k(plus tax bomb). This means that any aid that doesn't reduce my aid below that threshold is only meaningful in how much it would reduce the tax bomb, right? Also, if I do PI work, that basically gets cut in half and the tax bomb is eliminated, or I can take advantage of an LRAP program instead, which has even better terms.

This seems really silly but also awesome.

[Tiago Splitter]

WELL. I was doing some math today (as one is known to do) and I came to the below conclusion. Please someone correct me if I'm wrong.

I do not plan on doing Biglaw, I work at a small (plaintiff-side) firm currently and want to do PI after law school. A low T14 has gotten me about half tuition (not including COL) and I'm waiting to hear back re aid from CCN. If my job after law school isn't PI/LRAP eligible (something similar to the firm I work in now) I would go on PAYE/IBR.

Because of this, the amount of money I actually pay towards the loan is 'capped' at (Salary - ~$17000 - [deductions])*2 + [tax bomb], right? So if I make 60k, contribute a bit to a retirement plan, the *worst case scenario* amount I pay towards the loan is basically capped at $80k (plus the tax bomb)? Even if I make 100k, it only goes up to about 160k(plus tax bomb). This means that any aid that doesn't reduce my aid below that threshold is only meaningful in how much it would reduce the tax bomb, right? Also, if I do PI work, that basically gets cut in half and the tax bomb is eliminated, or I can take advantage of an LRAP program instead, which has even better terms.

This seems really silly but also awesome.

Yeah if you make a low salary you could easily pay less via 20 years of PAYE than what you borrowed, but it's still a lot of money. It also makes life more difficult if you want to get married.

[TheKisSquared]

I don't actually have much interest in getting married unless it would benefit me/us tax-wise (my SO and I have discussed this at length). Does IBR/PAYE consider spousal income? I know some LRAP programs do.

Also, is my logic off? Does the cost of the school really not matter much above that threshold?

[A. Nony Mouse]

IBR and PAYE don't consider spousal income if you file separately on your taxes, but they do if you file jointly. REPAYE does consider spousal income regardless of how you file. And I think most school programs consider spousal income.

[Tiago Splitter]

I don't actually have much interest in getting married unless it would benefit me/us tax-wise (my SO and I have discussed this at length). Does IBR/PAYE consider spousal income? I know some LRAP programs do.

Also, is my logic off? Does the cost of the school really not matter much above that threshold?

"The amount it would reduce the tax bomb" can still be a huge amount. Take the extra debt at graduation, add 20 years of simple interest and multiply that number by the tax rate. That's the extra money you'll owe.

[TheKisSquared]

I don't actually have much interest in getting married unless it would benefit me/us tax-wise (my SO and I have discussed this at length). Does IBR/PAYE consider spousal income? I know some LRAP programs do.

Also, is my logic off? Does the cost of the school really not matter much above that threshold?

"The amount it would reduce the tax bomb" can still be a huge amount. Take the extra debt at graduation, add 20 years of simple interest and multiply that number by the tax rate. That's the extra money you'll owe.

What do you think a good ballpark for tax rate would be? 25%? 30%? Because that is a good point - $300k 'left' after interest is an extra $100k I'd have to pay all at once....

[Tiago Splitter]

I don't actually have much interest in getting married unless it would benefit me/us tax-wise (my SO and I have discussed this at length). Does IBR/PAYE consider spousal income? I know some LRAP programs do.

Also, is my logic off? Does the cost of the school really not matter much above that threshold?

"The amount it would reduce the tax bomb" can still be a huge amount. Take the extra debt at graduation, add 20 years of simple interest and multiply that number by the tax rate. That's the extra money you'll owe.

What do you think a good ballpark for tax rate would be? 25%? 30%? Because that is a good point - $300k 'left' after interest is an extra $100k I'd have to pay all at once....

I'd use 40%. All that income hitting in one year means at least some of it will likely be taxed at the highest rate, so be conservative.