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Federal Student Loans Repayment Calculator
Income-driven repayment is a major benefit of the federal student loan system. Unfortunately, it can be confusing to know which plan to choose. It can get even more complicated if you have changes in income during your career that affect how your income-based repayment is calculated.
Federal Student Loan Repayment Calculator: Find The Best Plan
When you graduate Your federal loans are placed in a standard 10-year repayment plan. This plan clears your loans in the shortest possible time. The problem is, If you borrow more than about a dollar, Your monthly payment is too high.
So, in the early 1990s, the Department of Education started Income Driven Repayment (IDR) programs. The first of these is the non-profit Income Reimbursement ICR plan. Today, what you earn (PAYE); Saving Education Values (SAVE) known as REPAYE; There are four plans to choose IDR including Income Based Repayment (IBR) and ICR.
President Biden's Department of Education has released details of his new SAVE program, with more generous repayment terms and opportunities for student loan forgiveness.
Here are real examples of how to choose the right student loan repayment plan. Use Student Loan Planner's free repayment calculator to learn how your payments will change as your income changes. That's the best. Let's start with some basics you need to know before entering numbers into the calculator.
Student Loan Calculator
Some student loan lenders think of "income" as the total payment, and some lenders think of it as income going into the account. their bank. There is only one definition of income that matters in the world of student loans - your Adjusted Gross Income or AGI.
This is a unique number on your tax return. In fact, if you are digging your 2022 tax return, this is line 11 on your 1040 form.
How is the income-based repayment amount calculated? It depends on the IDR plan you choose, but there is a general income-based repayment formula calculation you can start with.
1. Start with your AGI. Then deduct 150% of the federal poverty guideline level for your family size (The new SAVE program lets you deduct 225%). This is your discretionary income in the world of student loans.
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2. Once you know your discretionary income, multiply by 10% for SAVE or PAYE or 15% for IBR. Undergrad can multiply by 5% if only borrowers save.
Bonus Our free student loan calculator does all this complicated math for you. I know some readers like to get carried away like we do, but it's done by a calculator so all you have is your income.
Now that we know how income is defined and how income-based repayment is calculated, Let's look at a few examples.
Let's say you left your MBA with $125,000 in federal student loan debt and started a job at the lower end of the "learn the ropes" spectrum. You expect to earn about $60,000 per year, but expect your salary to grow at a rapid rate of 7% per year over the next 10 years.
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For simplicity, you are currently single (but see the marriage example later). Here's how to maximize your income and your options for student loan payments.
When you graduate, you will automatically have a monthly student loan of $1,388 per month on a standard 10-year plan. A starting salary of $60,000 is painful for a new professional.
Using an interest rate of 4% over a 20-year repayment period; You can pay $757 per month by refinancing. You may qualify for a lower refinance interest rate, such as 4%. So you'll need good credit or a cosigner.
The most suitable options based on income are REPAYE, PAYE or IBR. Both reimbursement and PAYE are 10% of your discretionary income, Compared to IBR which is 15% of your discretionary income. I will go with PAYErepayment for this situation. A monthly payment of $339 is more manageable than $1,388.
Average Student Loan Debt
As income increases, whether that increase is 1% per year or 7% per year. Your monthly payment increases gradually.
Regarding the total cost of loan repayment; A standard 10-year plan is the best option, but remember the monthly payment? $1,388 per month. problem
Under the PAYEscenario, you will start with a lower monthly payment of $339/month and eventually $178; 121 will be used to repay your student loans. To save about $38,000 in tax over the life of the loan (20-year repayment period), you need to save about $100 per month in a taxable brokerage account.
If you look at it in today's dollars or in net present value (NPV), PAYE is the winner; But this is very close to the total NPV of the reissue. So paying back your MBA can be complicated.
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Realizing that you will pay between $165,000 and $275,000 for $125,000 of student loan debt, you should strongly consider paying it back to avoid interest as much as possible, but in this case there is a dispute about PAYE and private finance.
For future analysis, Once Biden's IDR rules are in place, The breakdown for borrowers is that a new PAYE / IBR will have to be paid over 20 years; OR WE HAVE TO PAY FOR 25 YEARS TO CHANGE / SAVE.
In this case, our recent MBA graduate is married to a nurse who earns $75,000 a year by 2025. They decided to file their taxes jointly. This changes the position of our MBA lender significantly.
Note that the standard 10-year and private student loan repayment results are the same, but the three income-based repayment options vary. For example, Under PAYE, our MBA borrower's payment by 2026 will jump from $367 to $1,028 by adding their spouse's income.
Infographic: How To Apply For Student Loans
Now PAYE is the worst case scenario. Although the loans close in 2039; Refinancing to a lower interest rate and paying over 20 years is the best option in today's dollar terms.
This situation is a good case for filing your taxes separately. If presented separately. You are allowed to exclude your spouse's income from your loan payment calculation. It is not suitable for everyone; You may lose some benefits, such as:
In our final case, we'll shift gears and see how your income-based repayments are measured against a significant increase in income.
Once a doctor completes their residency or fellowship, their annual income ranges from about $50,000 to $225,000 a year. They work in a non-profit hospital and are married in 2021. This loan is expected to have a child in 2025.
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As you can see, Since we are talking about income payment plans; The higher the income, the higher the payment. A typical 10-year plan would require monthly payments of $4,441 based on their $400,000 student loan balance.
Private reimbursement is best at around $2,424; But the IDR alleviates some of that burden; Especially if this doctor works for a non-profit hospital.
Although this couple decided to keep their tax situation simple and file jointly. Our physician continues to come out on top thanks to Public Service Loan Forgiveness (PSLF).
In particular, the right to residency Working at a non-profit hospital within a few years of fellowship and fellowship can save a physician over $300,000 compared to their next best option - which scared $4,000+ plan standard 10-year repayment.
Student Loan Payoff Calculator (updated For 2023)
Does this feel like total nostalgia? It is very complicated; That's why we're here for you. Schedule a consultation with us and we will review your individual circumstances. Getting a regular student loan program can take a lot of weight off your shoulders.
You are PSLF, Answer our 11 questions to get a personalized recommendation for 2023, including whether to pursue a new IDR plan or a Biden refinance (including a lender we 'thinking will give you the best grade).
Molly Laughter is a CFA® Holder, CFP®, and Certified Student Loan Professional (CSLP®) who has been working as a Student Loan Planner and Consultant since 2021. She is passionate about the complexities of student loans after to complete his MBA. In 2013, Molly was the founder of Laughter Financial. She previously worked as a Financial Planning Assistant at SGS Wealth Management and a Transaction and Investment Analyst at RGT Wealth Advisors.
All rates listed represent the APR range. Commonbond: If you refinance $100,000 or more through this site. The $500 cash bonus above is provided directly by the Student Loan Servicer.
Graduate Student Loan Guide
Terms offered are subject to change and state law restrictions. Loans from CommonBond Fisheries; LLC (NMLS #1175900); Powered by NMLS Consumer Access. If you are approved for a loan. The interest rate offered depends on your credit profile; Your application; The rates shown depend on the loan period chosen. If you choose to complete the application; We will do a hard credit pull that affects your credit score. All annual percentages
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