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Hi all,
I have a question about the best loan repayment plan for my situation. I searched the prior forums and couldn't find this situation precisely so I was hoping someone could help me sort out some of these issues. I have been trying to collect data about this decision and have found it really complicated. I would really appreciate any input you might be able to provide.
Details:
- About to start residency
- Total: ~$340,000 in loans at ~6% interest
- Married and my spouse has $0 in loans and made ~$45,000 last year
I am trying to weigh the costs and benefits of the PAYE vs. REPAYE programs in order to make the best decision about how to file our taxes: married filing separately (MFS) vs. married filing jointly (MFJ). Since PAYE does not count spouse income when MFS, this would be the main advantage of this plan. Since we would not file jointly and choose PAYE, below I will compare PAYE/MFS and REPAYE/MFJ.
Here is how I see the plans:
REPAYE/MFJ:
PROS:
- Negative amortization interest subsidy benefit - this would help my loans grow at a slower rate in the early goings
- Because they consider spouse income regardless of filing status, we would file jointly and get an additional ~$2000 in tax refund this year
- Both of us can contribute max to Roth IRA
CONS:
- Consider spouses income regardless of tax filing status, monthly payments would be bigger for this year, and substantially bigger as my income increases
PAYE/MFS:
PROS:
- Only consider your income for payment schedule if you are married and file taxes separately, $0 monthly payments for first 12 months
CONS:
- Loans would grow at the full interest rate due to no negative amortization interest subsidy benefit
- Lose ~$2,000 in tax refund this year by married filing
- Lose ability to contribute to ROTH IRA given MFS status
For our first year, it seems like REPAYE might be the best option as our minimum payments even with my spouses income considered is only ~$30 per month, which is less than the additional tax refund benefit plus the interest subsidy and Roth IRA. This cost/benefit ratio becomes more difficult to calculate as we progress and our shared income becomes >120,000 in later years of residency and the difference in monthly payments between PAYE and REPAYE is more like $300 vs $800.
Is it ok to consider this a year-to-year decision and revisit the numbers next year when deciding a plan? At that point, could we theoretically decide to file separately even if we file jointly this year? Am I missing anything by thinking about the payment plans year to year rather than on a long term basis?
Thanks in advance for your input. It is much appreciated!
I have a question about the best loan repayment plan for my situation. I searched the prior forums and couldn't find this situation precisely so I was hoping someone could help me sort out some of these issues. I have been trying to collect data about this decision and have found it really complicated. I would really appreciate any input you might be able to provide.
Details:
- About to start residency
- Total: ~$340,000 in loans at ~6% interest
- Married and my spouse has $0 in loans and made ~$45,000 last year
I am trying to weigh the costs and benefits of the PAYE vs. REPAYE programs in order to make the best decision about how to file our taxes: married filing separately (MFS) vs. married filing jointly (MFJ). Since PAYE does not count spouse income when MFS, this would be the main advantage of this plan. Since we would not file jointly and choose PAYE, below I will compare PAYE/MFS and REPAYE/MFJ.
Here is how I see the plans:
REPAYE/MFJ:
PROS:
- Negative amortization interest subsidy benefit - this would help my loans grow at a slower rate in the early goings
- Because they consider spouse income regardless of filing status, we would file jointly and get an additional ~$2000 in tax refund this year
- Both of us can contribute max to Roth IRA
CONS:
- Consider spouses income regardless of tax filing status, monthly payments would be bigger for this year, and substantially bigger as my income increases
PAYE/MFS:
PROS:
- Only consider your income for payment schedule if you are married and file taxes separately, $0 monthly payments for first 12 months
CONS:
- Loans would grow at the full interest rate due to no negative amortization interest subsidy benefit
- Lose ~$2,000 in tax refund this year by married filing
- Lose ability to contribute to ROTH IRA given MFS status
For our first year, it seems like REPAYE might be the best option as our minimum payments even with my spouses income considered is only ~$30 per month, which is less than the additional tax refund benefit plus the interest subsidy and Roth IRA. This cost/benefit ratio becomes more difficult to calculate as we progress and our shared income becomes >120,000 in later years of residency and the difference in monthly payments between PAYE and REPAYE is more like $300 vs $800.
Is it ok to consider this a year-to-year decision and revisit the numbers next year when deciding a plan? At that point, could we theoretically decide to file separately even if we file jointly this year? Am I missing anything by thinking about the payment plans year to year rather than on a long term basis?
Thanks in advance for your input. It is much appreciated!
