Lets say I make 100k a year and I set my payment to 10% of "discretionary income" whatever that means, do i pay 10% of my pretaxed or post taxed income and lets say i make 100k a year so I would be paying 10k a year for 25 years = $250k then my entire loan is wiped out? Is this how this works? I spoke to a customer service rep and they told me this is true I am very skeptical dont want to get screwed over, would love to hear if there is even a better option then this or how it works, my student loans is almost $500k and I want to figure out a way to pay as little as possible
Question about student loans
byu/Needleburst3 inStudentLoans
Posted by Needleburst3
4 Comments
Yes, but that’s also assuming you never have a pay increase.
IBR is 10% of your discretionary income for 20 years for undergrad, and 25 years for grad.
You also will have to pay a tax on the forgiven amount.
The math is all right here: https://studentaid.gov/manage-loans/repayment/plans/income-driven
It’s based on AGI vs a multiplier of the Federal poverty level. Details depend on the specific plan.
Discretionary income is your income above the set poverty line.
For IBR that is 150%, so roughly $23,500. Anything above that would be used to calculate your payment.
Taking the 100k example. They would remove $23,500 and then take 10% of $76,500 that was left.
Don’t forget about paying taxes on the forgiven amount.
Are all 500k federal student loans? There is a cap that you can take out and that is wayyy above the cap.
In this context, “discretionary income” means Adjusted Gross Income (AGI). AGI is your pre-tax income minus a few categories of deductions, for example, 401k contributions or contributions to an HSA. That AGI number is the amount used in the formula to determine your monthly payments.