The impact of filing status on student loan repayment plans
The volume of student loans continues to grow, as the number of borrowers and the amounts borrowed have increased significantly over the past academic year, the federal government issued $76 billion in new student loans to 7.6 million students. 1 As of , outstanding student loans issued or guaranteed by the federal government totaled $1.5 trillion. 2
The volume of student loans continues to grow, as the number of borrowers and the amounts borrowed have increased significantly over the past academic year, the federal government issued $76 billion in new student loans to 7.6 million students. 3 As of , outstanding student loans issued or guaranteed by the federal government totaled $1.5 trillion. 4
Income – driven repayment plans are available for federal student loans for borrowers incurred after a certain date
The plans take into account family size and income and generally limit payments to 10% of discretionary income (defined below), but no more than the current payment amounts. Unlike traditional student loans, which are usually repaid over 10 years, income – driven repayment plans are usually available for 20 – to – 25 – year terms and may in some cases be forgiven at the end.
Both the number of borrowers and the volume of loans in income – driven plans grew significantly from 2010 to 2017. The percentage of borrowers using income – driven plans grew from 11% to 24% for those with undergraduate loans and from 6% to 39% for those with graduate loans. 5
- Revised Pay As You Earn Repayment Plan (REPAYE Plan);
- Pay As You Earn Repayment Plan (PAYE Plan);
- Income-Based Repayment Plan (IBR Plan); and
- Income-Contingent Repayment Plan (ICR Plan).
The Congressional Budget Office (CBO) estimates that in 2017 approximately 45% of direct loan balance repayments used an income – driven plan, up from about 12% in 2010
The borrower’s tax return filing status (married filing jointly (MFJ) or married filing ount under three of the plans (PAYE, IBR, and ICR). These three plans determine the yearly loan payment based on joint income if the https://getbadcreditloan.com/payday-loans-mo/ballwin/ couple file jointly and based on individual income if the spouses file separately. Depending on the couple’s income and loan balance, the yearly loan payment ount is calculated using only the individual borrower’s income.
Many clients automatically assume that the benefit from reduced loan payments exceeds the additional tax cost of MFS. However, when questioned about the difference in payment associated with only using the individual borrower’s income, the clients eventually admit that they do not know the amount of the payment difference.