haapai
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Joined: Dec 20, 2010 20:40:06 GMT -5
Posts: 5,887
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Post by haapai on Sept 27, 2023 13:49:47 GMT -5
It is possible for a unmarried person in the SAVE repayment plan to have the remaining balance of their undergraduate loans forgiven before their remaining graduate loans are forgiven. This can happen if they put their undergraduate loans into SAVE first and add graduate loans at a later time. It does not apply to persons who put both undergraduate and graduate loans into SAVE at the same time. In the later case, the repayment period for the undergraduate loans will be extended from twenty years to twenty-five years and both undergraduate and graduate loans will become eligible for forgiveness at the same time.
But what happens if the remaining loan balances become eligible for forgiveness at different times? We all know that the forgiven amount will probably be taxable and that it will probably hurt, but what will happen to future repayment amounts? The forgiven amount will land in AGI for the tax year in which forgiveness is granted and that inflated AGI will be used to calculate a future year of repayment amounts.
This might not be a big deal if only $20K is forgiven, but what if the amount is $60K and the taxpayer in question has only $30K a year of discretionary income. Their repayments would jump by at least $500 a month* for twelve months unless there is a way of getting that loan forgiveness excluded from the AGI that is used to calculate repayment amounts.
*The percentage of discretionary income demanded in payments will increase from something between five and ten percent to ten percent, so the actual increase in payments will be more than $500/mo. The actual amount depends on the mix of undergraduate and graduate loans. What can be said is than payments will increase from less than $250/mo. to $750 a month if they continue to earn pretty much the same amount over 225% of the poverty line.
Does anyone know if I'm getting my flaps up about something that won't happen? Is there some obscure and poorly publicized rule that excludes taxable student loan forgiveness amounts from AGI when calculating the next year's repayments? Is there a form that can be filled out to explain that the prior year's AGI was atypical?
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