The good news is that the Congress reached an agreement on student loan interest rates, and because 10-year Treasury bills are low, student loan interest rates are apt to be low for a while too. The bad news is that once the economy improves and interest rates start rising generally, it will cost student debtors more to go to college or grad school.
However, student debtors have an ace up their sleeves: Stafford loans and Grad PLUS loans are eligible for the government’s Income-Based Repayment (IBR) program, which caps debtors’ monthly payments as a fraction of what they would pay under a 10-year repayment plan based on their incomes. The legal definition of “income” under IBR is “adjusted gross income,” which is a term of art used by the IRS that means “all income minus a set of very generic deductions.” By availing themselves of these deductions, debtors can reduce their “adjusted gross incomes” and hence their monthly student loan payments without reducing their incomes. Here are 12 examples:
(1) All trade and business deductions and certain trade and business deductions of employees (for teachers, reservists, performing artists, and fee-basis government officials)
(2) Losses from sale or exchange of property, reforestation expenses, deductions attributable to rents and royalties
(3) Pension, profit-sharing, and annuity plans of self-employed individuals, as well as retirement savings accounts
(4) Health savings accounts
(5) Penalties imposed by financial institutions for early withdrawal of savings
(6) Alimony payments
(7) Jury duty pay remitted to your employer
(8) Deduction for clean-fuel vehicles and certain refueling property
(9) Moving expenses
(10) Interest on education loans
(11) Higher education expenses
(12) One-half of self-employment tax
There are other deductions, but these are the most common ones people use. You can use this calculator to see what you can save. There are a few ways these can be used strategically to reduce your AGI. For example, you can contribute more to your health savings accounts or retirement plans. You can pay more interest on your student loans, which sounds counterintuitive but it might save you money. If you live in a state with low property taxes, you might benefit by spending your income on land, whose value isn’t always taxed as a capital gain.
Student loans on IBR can still take a cut from a debtors income, and not everyone is eligible. Talking to an experienced Las Vegas bankruptcy lawyer can help you assess your options. Filing chapter 7 bankruptcy might help you discharge unrelated debt that frees up money for your student loans.
For answers to more questions about student loans, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced fair debt collection practices act Bruce Weiner for a free initial consultation.
