EMERYVILLE, Calif., Jan. 26, 2018 /PRNewswire/ -- What do student loans and taxes have in common? It sounds like the opening to a bad joke, but when student loan payments are calculated using income, which is most easily gathered through tax documents, it's easier to see the relationship between the two. How income-driven repayment plan enrollees file their taxes can affect the size of their monthly payments. This is especially true for married federal student loan borrowers. American Financial Benefits Center, a document preparation company specializing in assisting borrowers in applying and recertifying for federal repayment plans, encourages its married clients to consider possible implications before they file their taxes.
"It's exciting to file your taxes jointly for the first time after you get married," said Sara Molina, Manager at AFBC. "But if you're in an income-driven repayment plan, you might want to take a step back and decide if that's the best course of action."
Filing jointly when married has many advantages, including higher base deductions, and can mean a larger tax refund for many couples. However, reporting a larger income can result in a larger student loan payment in an income-driven repayment plan. Because joint filing combines a couple's incomes, payments calculated based on that income will be higher — or worse, sometimes that bump in income can disqualify borrowers from enrolling in an IDR program. (However, while an income bump may prevent borrowers from enrolling in a new IDR, borrowers currently enrolled in an IDR will remain in that repayment plan no matter how much their income increases.)
Most IDRs will use both spouses' incomes in payment calculations only if they filed their taxes jointly. However, the Revised Pay As You Earn (REPAYE) program will use both incomes even if the couple filed separately. For enrollees in the other IDRs — Income-Based Repayment, Pay As You Earn (PAYE), and Income-Contingent Repayment — experts suggest doing some math to determine which filing status will be the most beneficial for their situation.
Calculating their potential tax refund and student loan payments for each filing status may be the best way for married IDR enrollees to determine the best course of action. AFBC recommends seeking help from tax professionals in exploring potential tax implications of filing joint versus separate. IDR enrollees can use the FSA's repayment estimator to calculate payments based on different income and student loan balance totals; alternatively, AFBC clients can talk directly to a student loan professional by calling AFBC.
"Taxes and student loans are complicated, and checking a single box can have effects on a couple's finances for a whole year," said Molina. "Married people who are in IDRs should consider those effects and do their research before jumping for the joint status. At AFBC, we can help our clients estimate student loan payments on top of our normal document preparation services. When we say we're there for our clients through the whole repayment process, we mean it."
About American Financial Benefits Center
American Financial Benefits Center is a document preparation company that helps clients apply for federal student loan repayment plans that fit their personal financial and student loan situation. They adhere to strict customer service guidelines and strive for the highest levels of honesty and integrity.
AFBC is a member of the Association for Student Loan Relief (AFSLR), and each representative on the phone has received the Certified Student Loan Professional certification through the International Association of Professional Debt Arbitrators (IAPDA).
To learn more about American Financial Benefits Center, please contact:
American Financial Benefits Center
1900 Powell Street #600
Emeryville, CA 94608
SOURCE American Financial Benefits Center