public service loan forgiveness: expecting it? consider spousal income!

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leeks
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public service loan forgiveness: expecting it? consider spousal income!

Post by leeks » Fri Mar 17, 2017 3:58 pm

Is anyone nearing the 120 payments and expecting to benefit from Public Service Loan Forgiveness? I believe late 2017 will be the first time anyone could be eligible for it and I am fascinated to know if anyone is actually getting a benefit.

I posted about my 70K loans in 2011:
viewtopic.php?f=2&t=72331#p1013641

As it turned out, there is no way for me to benefit as I married someone who now earns a high income and I am taking time out of the workforce as a stay-at-home parent (with two kids I couldn't earn much of anything after taxes and child care costs in NYC). The minimum payments set by our household income would pay off the loan before it could be forgiven. The tax savings of married filing jointly outweighed any potential loan benefit if we had tried married filing separately to get loan payments set on only my income.

I failed to consider the spousal income factor when I was finishing my masters degree and trying to think through the potential for forgiveness at various ranges of *my* income (even though I was already six years into a relationship with someone who, in retrospect, was obviously going to be a high earner after grad school). I made only minimum payments for four years (three working at nonprofit, one home with baby) before my husband started his first job out of grad school and we realized forgiveness would not apply to us. Minimum payments had been less than interest, so the loans spiked from 70K to a high of 90K before we got with it. Chasing the idea of forgiveness was costly.

strafe
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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by strafe » Sat Mar 18, 2017 6:23 am

I think your math may be off The income based repayment plan caps your payment at the amount equal to a 10-year amortization. In other words, the payment stops increasing with income once you cross that threshold. If you are in IBR, you won't be paying the loan off early and you will still benefit from forgiveness since you made small payments in the early years.

Tamarind
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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by Tamarind » Sat Mar 18, 2017 7:03 am

There's a distinction between income based repayment plans (a method of calculating payment schedule), and forgiveness of balance based on having a public service occupation.

Some background that helped me here: https://blog.ed.gov/2016/06/qualify-pub ... rgiveness/

I'm assuming OP is unable to get on any of the non-standard payment plans now due to spouse's income. Since being on a modified payment plan is a requirement for forgiveness, they are stuck. One must be on IBR at the time of forgiveness even if earlier payments made on standard plan do count towards the 120. This is not easy to model in advance!

Too bad about the extra $20k, OP, but I'm glad you now have the income to pay the loans off. Thanks for sharing your experience!

I have an acquaintance who is bouncing from grad program to grad program, living off student loans and counting on forgiveness after 25 years of IBR. I don't think he understands​ that the amount forgiven will be taxable under current law (unlike w public service forgiveness)...

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leeks
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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by leeks » Sat Mar 18, 2017 3:13 pm

strafe wrote:I think your math may be off The income based repayment plan caps your payment at the amount equal to a 10-year amortization. In other words, the payment stops increasing with income once you cross that threshold. If you are in IBR, you won't be paying the loan off early and you will still benefit from forgiveness since you made small payments in the early years.


Payments made while working anything less than full time do not count toward the 120 months, so it is not 10 years from when I graduated. If I return to full-time work when both kids are eligible for public preK, it would have been 6 years of payments that wouldn't count toward the 120 months. Then I would need another 7 years of eligible employment before forgiveness but the loan would be paid off before then. I knew I might take time off for kids, I had just assumed that I would have relatively low payments if I wasn't working or had only part time income. Again, I just failed to properly consider my partner's earning potential in the equation.

DrCheap
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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by DrCheap » Sat Mar 18, 2017 3:40 pm

You might want to look into whether it is worth it to file taxes separately and use IBR instead of PAYE or REPAYE. If I recall correctly, IBR allows you to calculate payments based only on your income, not combine spouse, IF you file taxes separately. That may not be worth it, given the heavy tax hit you might take as a result, but it should be an option.

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leeks
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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by leeks » Sat Mar 18, 2017 4:31 pm

I did check that. Married filing separately would not have been worth it.

I'm just really curious to hear of anyone who is actually taking advantage of the forgiveness for a significant amount. I suspect that there may be few for whom it works out to be much benefit. Obviously there is nothing wrong with having to repay money we borrowed! It just may be that some of us unwisely paid significantly more interest because we were swept up by the allure of forgiveness.

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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by JimmyD » Sat Mar 18, 2017 9:48 pm

My wife has $235k in loans. We utilize IBR, file taxes separately, max out her 403B to lower her AGI, and are planning on PSLF to zero out the loans in another six years.

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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by JGoneRiding » Sat Mar 18, 2017 10:04 pm

Simply because I find this topic fascinating (and think a lot of people with PAYE/REPAYE are going to be hit with a HUGE tax bill that they are unprepared for) Is PSLF the one that will NOT tax you if your job qualifies and forgives as soon as 10 years???

But the other two will be tax bills for forgiveness?? and go out as far as 25 years (which seems crazy to make any attempt at future projections of benefit)

Does PSLF have a cap on amount? Seems like once a bunch of docs take advantage of this there might end up being changes to it????

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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by petulant » Sat Mar 18, 2017 10:20 pm

JGoneRiding wrote:Simply because I find this topic fascinating (and think a lot of people with PAYE/REPAYE are going to be hit with a HUGE tax bill that they are unprepared for) Is PSLF the one that will NOT tax you if your job qualifies and forgives as soon as 10 years???

But the other two will be tax bills for forgiveness?? and go out as far as 25 years (which seems crazy to make any attempt at future projections of benefit)

Does PSLF have a cap on amount? Seems like once a bunch of docs take advantage of this there might end up being changes to it????


Hope they don't change it. PSLF is 10 years, no cap on amount, no tax. PSLF also requires government/nonprofit work.

IBR, PAYE, and REPAYE all have a 20 or 25 year taxable forgiveness period.

petulant
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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by petulant » Sat Mar 18, 2017 10:25 pm

leeks wrote:Is anyone nearing the 120 payments and expecting to benefit from Public Service Loan Forgiveness? I believe late 2017 will be the first time anyone could be eligible for it and I am fascinated to know if anyone is actually getting a benefit.

I posted about my 70K loans in 2011:
viewtopic.php?f=2&t=72331#p1013641

As it turned out, there is no way for me to benefit as I married someone who now earns a high income and I am taking time out of the workforce as a stay-at-home parent (with two kids I couldn't earn much of anything after taxes and child care costs in NYC). The minimum payments set by our household income would pay off the loan before it could be forgiven. The tax savings of married filing jointly outweighed any potential loan benefit if we had tried married filing separately to get loan payments set on only my income.

I failed to consider the spousal income factor when I was finishing my masters degree and trying to think through the potential for forgiveness at various ranges of *my* income (even though I was already six years into a relationship with someone who, in retrospect, was obviously going to be a high earner after grad school). I made only minimum payments for four years (three working at nonprofit, one home with baby) before my husband started his first job out of grad school and we realized forgiveness would not apply to us. Minimum payments had been less than interest, so the loans spiked from 70K to a high of 90K before we got with it. Chasing the idea of forgiveness was costly.


Honestly it sounds more like the surprise is staying home with kids, not spousal income--that stops the payments from qualifying and creates the tax benefit from MFJ.

PSLF just screws up having kids--whether we're talking about staying home or taking the highest-possible job possible.

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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by JimmyD » Sun Mar 19, 2017 6:15 am

I am constantly thinking about what we will do if PSLF is capped. That would definitely change the course of our lives and our financial future. Luckily, we have a signed master promissory note and the fact that the government has no precedent of making those sort of legislative changes retroactive. My bet is that there eventually will be changes, but those changes will only apply to new borrowers. If I'm wrong and a cap is made retroactive, we are sunk.

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leeks
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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by leeks » Mon Mar 20, 2017 1:06 am

JimmyD wrote:My bet is that there eventually will be changes, but those changes will only apply to new borrowers.

I think it is a reasonable assumption that future changes would only apply to new borrowers. I hope it works out for your family as expected.

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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by thewiseone » Wed Mar 22, 2017 9:45 am

Hi everyone! I am a working professional and my wife is in medical school. We are not counting on the PSLF program because first, we can afford to pay off the student loan debt right now as we incur the debt, and second, the uncertainty around the legislation to modify the PSLF program is too high. Moreover, the PSLF program requires one to work for a non-profit/government (which most hospital systems are considered non-profits), but what if my wife wanted to start her own private practice within the first 10 years after graduating from med school? Remaining debt-free is not something everybody can do, but if given a choice I'd rather pay more right now and keep my freedom.

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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by Leemiller » Wed Mar 22, 2017 10:24 am

Is there any legal reason to assume that changes won't be retroactive? For example, taking into account money put in IRAs and 401ks or spousal income regardless of filing status? Or even a newly placed cap - the legal obligation of the federal govt to continue this sort of program isn't clear to me.

I don't see how these programs are financially sustainable and the biggest benefits are for doctors and lawyers, etc who choose to attend pricey private colleges. I'm glad they weren't around when I graduated - too much of the tail wagging the dog so to speak in terms of career choices.

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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by JimmyD » Wed Mar 22, 2017 10:45 am

Leemiller wrote:Is there any legal reason to assume that changes won't be retroactive? For example, taking into account money put in IRAs and 401ks or spousal income regardless of filing status? Or even a newly placed cap - the legal obligation of the federal govt to continue this sort of program isn't clear to me.

I don't see how these programs are financially sustainable and the biggest benefits are for doctors and lawyers, etc who choose to attend pricey private colleges. I'm glad they weren't around when I graduated - too much of the tail wagging the dog so to speak in terms of career choices.


From a legal aspect, it is within congressional power to modify the program retroactively.

Doing so, however, would be a breach of the master promissory note signed by each applicable borrower and the Department of Education. Further, there is not a precedent, that I am aware of, in which new legislation, which very clearly has a large, negative impact to the very base of individuals the original legislation was designed to benefit, is applied retroactively.

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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by petulant » Wed Mar 22, 2017 11:51 am

JimmyD wrote:
Leemiller wrote:Is there any legal reason to assume that changes won't be retroactive? For example, taking into account money put in IRAs and 401ks or spousal income regardless of filing status? Or even a newly placed cap - the legal obligation of the federal govt to continue this sort of program isn't clear to me.

I don't see how these programs are financially sustainable and the biggest benefits are for doctors and lawyers, etc who choose to attend pricey private colleges. I'm glad they weren't around when I graduated - too much of the tail wagging the dog so to speak in terms of career choices.


From a legal aspect, it is within congressional power to modify the program retroactively.

Doing so, however, would be a breach of the master promissory note signed by each applicable borrower and the Department of Education. Further, there is not a precedent, that I am aware of, in which new legislation, which very clearly has a large, negative impact to the very base of individuals the original legislation was designed to benefit, is applied retroactively.


This is not legal advice, but I think the fact that PSLF was included in the master promissory note and relied upon by numerous borrowers could create legal claims if the government attempted retroactive application of PSLF restrictions.

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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by JimmyD » Wed Mar 22, 2017 12:23 pm

petulant wrote:
JimmyD wrote:
Leemiller wrote:Is there any legal reason to assume that changes won't be retroactive? For example, taking into account money put in IRAs and 401ks or spousal income regardless of filing status? Or even a newly placed cap - the legal obligation of the federal govt to continue this sort of program isn't clear to me.

I don't see how these programs are financially sustainable and the biggest benefits are for doctors and lawyers, etc who choose to attend pricey private colleges. I'm glad they weren't around when I graduated - too much of the tail wagging the dog so to speak in terms of career choices.


From a legal aspect, it is within congressional power to modify the program retroactively.

Doing so, however, would be a breach of the master promissory note signed by each applicable borrower and the Department of Education. Further, there is not a precedent, that I am aware of, in which new legislation, which very clearly has a large, negative impact to the very base of individuals the original legislation was designed to benefit, is applied retroactively.


This is not legal advice, but I think the fact that PSLF was included in the master promissory note and relied upon by numerous borrowers could create legal claims if the government attempted retroactive application of PSLF restrictions.


My thoughts exactly. Being that we'll have a $235K debt on the line, you can bet I'll be employing legal counsel / action if needed.

petulant
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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by petulant » Wed Mar 22, 2017 12:32 pm

JimmyD wrote:
petulant wrote:
JimmyD wrote:
Leemiller wrote:Is there any legal reason to assume that changes won't be retroactive? For example, taking into account money put in IRAs and 401ks or spousal income regardless of filing status? Or even a newly placed cap - the legal obligation of the federal govt to continue this sort of program isn't clear to me.

I don't see how these programs are financially sustainable and the biggest benefits are for doctors and lawyers, etc who choose to attend pricey private colleges. I'm glad they weren't around when I graduated - too much of the tail wagging the dog so to speak in terms of career choices.


From a legal aspect, it is within congressional power to modify the program retroactively.

Doing so, however, would be a breach of the master promissory note signed by each applicable borrower and the Department of Education. Further, there is not a precedent, that I am aware of, in which new legislation, which very clearly has a large, negative impact to the very base of individuals the original legislation was designed to benefit, is applied retroactively.


This is not legal advice, but I think the fact that PSLF was included in the master promissory note and relied upon by numerous borrowers could create legal claims if the government attempted retroactive application of PSLF restrictions.


My thoughts exactly. Being that we'll have a $235K debt on the line, you can bet I'll be employing legal counsel / action if needed.


You can bet that if I wasn't in the class I would be gunning to be the class action attorney on that one. There's a little thing called the Court of Federal Claims, and it has a Rule 23.

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leeks
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Re: public service loan forgiveness: expecting it? consider spousal income!

Post by leeks » Fri Mar 31, 2017 7:52 am

noticed this article today:
"Student Loan Forgiveness Program Approval Letters May Be Invalid, Education Dept. Says"
https://www.nytimes.com/2017/03/30/busi ... wsuit.html

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