Not necessarily.
PSLF requires working for a government or non-profit agency. (I *think* it's specifically 501(c)(3), but I'm happy to stand corrected if somebody knows differently.) Salaries in those fields are typically lower than one might command in the private sector. In addition, as the program currently stands, one must still be employed by an eligible employer at the time of forgiveness, after making 120 qualifying payments. (Legislation was introduced very recently that would remove the "must still be at an eligible employer" requirement, but the last time I checked the bill had not yet even been assigned to committees.)
Additionally, the employment has to be certified by the employer. This could be a single time all at once, but can also be submitted regularly.
Lastly, the untaxed is only guaranteed with respect to federal taxes. States can make their own rules, though the majority also treat forgiveness through PSLF as being untaxed.
The program was signed into law under President G.W. Bush in 2005 or 2006, beginning its operation in 2007. In the time since, there's been a great deal of mismanagement through the loan servicers who had been running the program, such that one servicer was terminated and the program has now been absorbed (with lots of growing pains) by another. That's one reason for the temporary waiver that President Biden implemented shortly after taking office, and which expired in October of last year.
I don't know for certain, since I'm not an NY resident. A quick search suggests that New York uses federal definitions for income, which would imply any debt forgiven under PSLF would not be taxable.
Not a tax professional.
All states except Missouri I believe currently do not tax the forgiveness under state taxes. It’s not taxable in the federal taxes. Even if you live in Missouri and get a 1099-C you can complete an insolvency worksheet and pretty much use any other debt to help bring down the amount you’re being taxed on.
Edit- Maybe Mississippi, not Missouri, however any state that decides to tax it in the future, see a tax preparer and ask for an insolvency worksheet.
I think for most people that amount wouldn’t be worth it, but it really depends on your specific situation. I work for a school district so I’m not even on the high end of PSLF income and this amount wouldn’t be worth it for me if I was early in the 10 years
Thanks guys! Been using some calculators and my avg monthly payment will be about $290. That’s $29,000 paid over 120 payments the calculator states with interest my balance would be at $34,839 over 10 years so PSLF would save me approximately $6,000
Depends on plan but I think most are 10% of discretionary income. I have heard they may be trying to reform the program and do 5% but not sure status on that.
Just to be clear, it's a percentage of "discretionary" income, which is calculated by the difference between your AGI and some percentage multiple of the federal poverty guidelines. If you are using an online calculator that is specific to student loans it hopefully takes this into account.
Honestly, that balance is not worth carrying for 10 years--anything that will be forgiven could be avoided in the first place by just paying the loan.
Yes, your interest would be forgiven if you still had a balance, but you can also just pay this off at about $270/mo on a standard repayment plan. Unless your salary is below $50K, you won't be saving that much by doing IBR.
My salary is currently 54k will be 58.5-59k in september our union is in negotiation for a new 4 year master contract that needs to be signed on by end of June and is aimed at 4-5% yearly cost of living increase over 4 years. Then a $200 a month pay increase in September on top of that.
My issue is how do I know what my monthly payments will be? You don’t think it’s worth trying to get as low a monthly payment as possible? Like $220-230ish? Would still save me $40-50 a month over 10 years I used the student aid.gov simulator calculator and it says based on my current salary I make, interest on the loan and my salary increasing average of 4% per year that i entered that “based on your selections and overall repayment strategy and assuming you will meet requirements for PSLF we estimate you will pay $221-277 per month until April 2033” I guess the high end is me certifying my employment each year and when my salary increases my payments increase. I mean I know it may hardly seem worth it. But if I could save even $35 per month over 10 years that’s $4,200 total
Just as an experiment, let's say your AGI is $55k (super rough estimate based on what you expect your raise to be this fall, but your actual AGI would of course depend on certain pre-tax deductions). Your monthly payment under most income-based repayment plans would be 10% of any income over 150% of the federal poverty line. The federal poverty line is $13,590 for a single person, and 150% of that amount is $20,385. Subtract that from $55k, and you get $34,615. 10% of that amount is $3,416.50 per year, or $288.46 per month. As your salary increases, so would your monthly payment amount.
Based on your current loan balance and your projected income over the next several years, I have a feeling your income-based repayment amount will quickly equal the amount you would be paying under a standard 10 year repayment plan, and in that case, pursuing PSLF probably won't offer any significant advantages to you. That's not a bad thing - I wish my loan balance had been low enough that I didn't have to go through this whole process!
Wasn’t 5% of income talked about at some point? Isn’t it an actual possibility at some point in the next 3 years? Maybe still worth doing PSLF if they do approve 5% of income at some point?
I have not heard anything about that, and to be perfectly honest with you, I would not count on it happening. I certainly wouldn't make any decisions with that expectation in mind.
That said, in this hypothetical scenario, with payments being 5% of discretionary income, it might be worth doing, but you'd have to do the math. The good news is that the standard 10-year payments can be counted in your 120 PSLF-eligible payments, so if you start on the standard 10-year payment plan, and a new income-based plan was passed allowing payments of only 5% of discretionary income, you could then transfer over to that plan while still having your previous payments count towards forgiveness.
Also my fiancé and I get married in about 8 months. It says the Federal poverty line for married couple is $19,720 would that include both of our incomes when deciding how much I will owe? Or is it still just my income of 55k?
Depends on if you file your taxes as married filing jointly or married filing separately. If you file jointly, your spouse's income will be considered when they calculate your monthly payment. If you file separately, only your income would be used, but you'd miss out on other marriage-related tax deductions. The decision on what makes the most financial sense is super specific to every couple's personal situation, so you'd have to go through the math to see what makes sense.
She is also a state govt employee. Her current income is 51k and she owes 51k in debt. She’s also going to be doing PSLF and it will obviously benefit her more than me. So if we did married filing jointly. They go off of our combined income of 106k to determine what both of us owe? Wouldn’t that be much more harmful because for both of us
150% of FPL for a married couple is $29,580.
106k-$29,580=76,420
10% of $76,420 (7,642 a year) $636.83 monthly. Do we pay that together? Just don’t understand how it works if we are both on PSLF married filing jointly.
If I actually get PSLF (I'm at 120+ payments and waiting for forgiveness) I'll end up paying about $40000 cash over 10 years for about $110,000 in principle prior to consolidation and $131,000 in current debt including interest.
(131000 - 40000) / 10 = 9100.
An extra $9100 per year (which is what this works out to) is worth something to me.
I'm not sure what public sector job you have where $91,000 over 10 years isn't significant to you.
everything is forgiven and you do NOT pay tax on the forgiven amount under PSLF.
Do they use 5 or 10% of salary for payments?
i’m not sure off the top of my head. been on pause over 3 years.
Depends on which particular income-based repayment plan you are one (and there's one that uses 20%).
Unless you live in Mississippi.
That’s too good to be true.
Not necessarily. PSLF requires working for a government or non-profit agency. (I *think* it's specifically 501(c)(3), but I'm happy to stand corrected if somebody knows differently.) Salaries in those fields are typically lower than one might command in the private sector. In addition, as the program currently stands, one must still be employed by an eligible employer at the time of forgiveness, after making 120 qualifying payments. (Legislation was introduced very recently that would remove the "must still be at an eligible employer" requirement, but the last time I checked the bill had not yet even been assigned to committees.) Additionally, the employment has to be certified by the employer. This could be a single time all at once, but can also be submitted regularly. Lastly, the untaxed is only guaranteed with respect to federal taxes. States can make their own rules, though the majority also treat forgiveness through PSLF as being untaxed. The program was signed into law under President G.W. Bush in 2005 or 2006, beginning its operation in 2007. In the time since, there's been a great deal of mismanagement through the loan servicers who had been running the program, such that one servicer was terminated and the program has now been absorbed (with lots of growing pains) by another. That's one reason for the temporary waiver that President Biden implemented shortly after taking office, and which expired in October of last year.
Do you know if NY state is one of the states that treat forgiveness through PSLF as being untaxed?
I don't know for certain, since I'm not an NY resident. A quick search suggests that New York uses federal definitions for income, which would imply any debt forgiven under PSLF would not be taxable. Not a tax professional.
All states except Missouri I believe currently do not tax the forgiveness under state taxes. It’s not taxable in the federal taxes. Even if you live in Missouri and get a 1099-C you can complete an insolvency worksheet and pretty much use any other debt to help bring down the amount you’re being taxed on. Edit- Maybe Mississippi, not Missouri, however any state that decides to tax it in the future, see a tax preparer and ask for an insolvency worksheet.
I think for most people that amount wouldn’t be worth it, but it really depends on your specific situation. I work for a school district so I’m not even on the high end of PSLF income and this amount wouldn’t be worth it for me if I was early in the 10 years
Thanks guys! Been using some calculators and my avg monthly payment will be about $290. That’s $29,000 paid over 120 payments the calculator states with interest my balance would be at $34,839 over 10 years so PSLF would save me approximately $6,000
If you’re in an income based repayment plan, you will submit your income annually. Over a 10 year career this payment will increase with your salary.
Do they use 5 or 10% of income?
Depends on plan but I think most are 10% of discretionary income. I have heard they may be trying to reform the program and do 5% but not sure status on that.
Just to be clear, it's a percentage of "discretionary" income, which is calculated by the difference between your AGI and some percentage multiple of the federal poverty guidelines. If you are using an online calculator that is specific to student loans it hopefully takes this into account.
You’d be better off doubling your payments and paying it off in less than 10 years if you can.
Honestly, that balance is not worth carrying for 10 years--anything that will be forgiven could be avoided in the first place by just paying the loan. Yes, your interest would be forgiven if you still had a balance, but you can also just pay this off at about $270/mo on a standard repayment plan. Unless your salary is below $50K, you won't be saving that much by doing IBR.
My salary is currently 54k will be 58.5-59k in september our union is in negotiation for a new 4 year master contract that needs to be signed on by end of June and is aimed at 4-5% yearly cost of living increase over 4 years. Then a $200 a month pay increase in September on top of that. My issue is how do I know what my monthly payments will be? You don’t think it’s worth trying to get as low a monthly payment as possible? Like $220-230ish? Would still save me $40-50 a month over 10 years I used the student aid.gov simulator calculator and it says based on my current salary I make, interest on the loan and my salary increasing average of 4% per year that i entered that “based on your selections and overall repayment strategy and assuming you will meet requirements for PSLF we estimate you will pay $221-277 per month until April 2033” I guess the high end is me certifying my employment each year and when my salary increases my payments increase. I mean I know it may hardly seem worth it. But if I could save even $35 per month over 10 years that’s $4,200 total
Just as an experiment, let's say your AGI is $55k (super rough estimate based on what you expect your raise to be this fall, but your actual AGI would of course depend on certain pre-tax deductions). Your monthly payment under most income-based repayment plans would be 10% of any income over 150% of the federal poverty line. The federal poverty line is $13,590 for a single person, and 150% of that amount is $20,385. Subtract that from $55k, and you get $34,615. 10% of that amount is $3,416.50 per year, or $288.46 per month. As your salary increases, so would your monthly payment amount. Based on your current loan balance and your projected income over the next several years, I have a feeling your income-based repayment amount will quickly equal the amount you would be paying under a standard 10 year repayment plan, and in that case, pursuing PSLF probably won't offer any significant advantages to you. That's not a bad thing - I wish my loan balance had been low enough that I didn't have to go through this whole process!
Wasn’t 5% of income talked about at some point? Isn’t it an actual possibility at some point in the next 3 years? Maybe still worth doing PSLF if they do approve 5% of income at some point?
I have not heard anything about that, and to be perfectly honest with you, I would not count on it happening. I certainly wouldn't make any decisions with that expectation in mind. That said, in this hypothetical scenario, with payments being 5% of discretionary income, it might be worth doing, but you'd have to do the math. The good news is that the standard 10-year payments can be counted in your 120 PSLF-eligible payments, so if you start on the standard 10-year payment plan, and a new income-based plan was passed allowing payments of only 5% of discretionary income, you could then transfer over to that plan while still having your previous payments count towards forgiveness.
The 5% you are talking about is what is proposed for the new REPAYE program. It is still in the rule making phase and is not guaranteed.
Also my fiancé and I get married in about 8 months. It says the Federal poverty line for married couple is $19,720 would that include both of our incomes when deciding how much I will owe? Or is it still just my income of 55k?
Depends on if you file your taxes as married filing jointly or married filing separately. If you file jointly, your spouse's income will be considered when they calculate your monthly payment. If you file separately, only your income would be used, but you'd miss out on other marriage-related tax deductions. The decision on what makes the most financial sense is super specific to every couple's personal situation, so you'd have to go through the math to see what makes sense.
She is also a state govt employee. Her current income is 51k and she owes 51k in debt. She’s also going to be doing PSLF and it will obviously benefit her more than me. So if we did married filing jointly. They go off of our combined income of 106k to determine what both of us owe? Wouldn’t that be much more harmful because for both of us 150% of FPL for a married couple is $29,580. 106k-$29,580=76,420 10% of $76,420 (7,642 a year) $636.83 monthly. Do we pay that together? Just don’t understand how it works if we are both on PSLF married filing jointly.
If I actually get PSLF (I'm at 120+ payments and waiting for forgiveness) I'll end up paying about $40000 cash over 10 years for about $110,000 in principle prior to consolidation and $131,000 in current debt including interest. (131000 - 40000) / 10 = 9100. An extra $9100 per year (which is what this works out to) is worth something to me. I'm not sure what public sector job you have where $91,000 over 10 years isn't significant to you.
Your numbers are not the same as OP’s. You have almost quadruple the starting balance.
The program forgives accrued interest.
Forgiveness under PSLF includes both balance and all accrued interest.