How to Look Up Your AGI

Finding your AGI is straightforward and there are a few options to locate the exact number:

1. 1040 Form: On the standard 1040 tax form, your AGI is listed on Line 11.
2. 1040-SR Form: If you use the 1040-SR form, designed for seniors, your AGI is on Line 11.
3. IRS Website: If you don’t have access to your physical tax documents, you can look up your AGI on the IRS website. Log into your account on IRS.gov, navigate to the “Tax Records” section, and you’ll find your AGI on your most recent tax return.

Understanding Adjusted Gross Income (AGI)

AGI is your gross income after specific adjustments, also known as “above-the-line” deductions. It includes your total income from wages, dividends, capital gains, business income, and other sources, minus allowable deductions like student loan interest, retirement plan contributions, and tuition fees.

Difference Between AGI and Annual Salary:

• Annual Salary: This is your total income before any deductions.
• AGI: This is your income after accounting for allowable adjustments. It’s typically lower than your annual salary due to these deductions.

To be clear, Adjusted Gross Income isn’t something that is used just for student loans. Instead, it is a critical figure during tax season. AGI is essential for determining eligibility for various tax credits and deductions, in addition to calculating your tax bill.

AGI for Married Couples

For married couples, understanding how AGI works is vital, especially when estimating student loan payments:

• Joint Filers: Couples who file jointly will have a shared AGI, which includes the combined income and deductions of both spouses.
• Separate Filers: Couples who file separately will have independent AGIs, meaning each spouse’s AGI is calculated based on their individual income and deductions.

When estimating student loan payments, using AGI is the best way to get an accurate picture of payments on various repayment plans. If your AGI includes your spouse’s income, it means you filed jointly and your spouse’s income will be factored into your student loan payment. If you file seperately, your spouse’s income is not included in your AGI and it does not impact your student loan payments.

For this reason, many married student loan borrowers elect to file their taxes separately.

Keeping AGI Down to Lower Student Loan Payments

Keeping your AGI as low as possible can result in lower monthly payments for those on income-driven repayment plans like SAVE. Here are some strategies:

• Above-the-Line Deductions: These deductions lower your AGI and include contributions to certain retirement plans, student loan interest, tuition fees, and health savings account (HSA) contributions.
• Below-the-Line Deductions: These deductions, such as standard or itemized deductions, do not affect your AGI.

Examples of Deductions That Lower AGI

1. 401(k) Contributions: Money contributed to a 401(k) retirement plan reduces your taxable income and thus your AGI.
2. Traditional IRA Contributions: Putting money in an IRA will also lower yoru AGI. (Note: Roth IRA contributions do not reduce AGI.)
3. Health Savings Account (HSA): Contributions to an HSA are deductible, lowering your AGI.
4. Student Loan Interest: Up to $2,500 of student loan interest can be deducted, reducing your AGI.

To dig deeper, check out this article for more detailed strategies on how to lower your AGI to reduce student loan payments.

By understanding and managing your AGI, you can better control your student loan payments and take advantage of income-driven repayment plans to reduce your financial burden and get more student debt forgiven.

The post Adjusted Gross Income (AGI) and Your Student Loans appeared first on The Student Loan Sherpa.

What is discretionary income for student loans?

Your discretionary income is crucial when calculating student loan payments on income-driven repayment (IDR) plans.

The government defines discretionary income slightly differently, depending on your repayment plan. If you sign up for SAVE, your discretionary income is the money you make above 225% of the federal poverty level in your state. Borrowers on IBR and PAYE get the less favorable number of 150% of the federal poverty level. Finally, ICR uses 100% of the federal poverty level for discretionary income calculations.

If the math seems complicated, monthly discretionary income calculations can be made using the calculator above.

Why does my discretionary income matter for student loan payments?

If you have federal student loans, some of the best repayment plans are income-driven repayment plans such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Saving on A Valuable Education (SAVE). These plans are the best because your student loan payment is based on what you can afford rather than how much you owe. For many borrowers, this can result in a significant reduction in minimum monthly payments. In some cases, borrowers qualify for $0 per month payments.

Under IBR, the Department of Education expects you to pay 15% of your discretionary income towards your student loans. The PAYE and SAVE plans reduce that number to 10%. Details like your marital status and when you first borrowed a student loan will impact which Income-Driven Repayment Plan is best. When the SAVE plan is fully implemented, borrowers will pay between 5% and 10% each month.

But what exactly is discretionary income for student loans?

Before paying anything under IBR or PAYE, the government lets you keep 100% of your salary up to a certain point. That number is set at 150% of the poverty level. According to the Department of Education, this is the non-discretionary portion of your income. The federal poverty level changes yearly and is based on your family size. For 2024, the numbers look like this:

Household Size	150% of Poverty Level
1	$22,590
2	$30,660
3	$38,730
4	$46,800
5	$54,870
6	$62,940
7	$71,010
8	$79,080

*Note: these numbers are for the 48 Contiguous States… Alaska and Hawaii have slightly higher numbers.

When calculating student loan payments, your discretionary income is every dollar (pre-tax) that you make above the numbers listed on the table. Suppose your house size is three, and you make $50,730 per year. In this example, your discretionary income would be $12,000 per year. We get this number by subtracting the $38,730 for a family of three from the $50,730 yearly salary.

Calculating your payments in 2024

Once you determine your monthly discretionary income, multiply that number by the percentage your repayment plan charges. For example, suppose you had a monthly discretionary income of $1,000. If you were on the old IBR plan charging 15%, your monthly payment would be $150; if you were on PAYE getting charged 10%, your monthly payment would be $100.

Note: the exact calculation will vary depending on how you verify your income with your lender. Some people use their two most recent pay stubs, while others use last year’s taxes. If you use your most recent tax form, it will use your Adjusted Gross Income or AGI.

Why is discretionary income an unfair calculation?

How much you can truly afford to pay depends upon a whole lot more than just the size of your family. Unfortunately, these factors are not considered. If you have medical bills, owe child support, or have other private student loans, your discretionary income does not change.

The 48 contiguous states are all treated the same. Whether you live in rural Kansas or San Francisco, the numbers do not change. Applying the exact same standard without adjusting for the cost of living means some borrowers will have a discretionary income that exaggerates how much they can reasonably afford.

Sheltering income from discretionary income calculations

However, as noted earlier, for most people, income is based upon their AGI.

Borrowers can keep this fact in mind when doing their tax planning.

My favorite strategy is to put money in tax-advantaged retirement accounts like a 401(k) or traditional IRA. Putting money in an eligible retirement account will result in a lower AGI.

Putting some money in a traditional IRA will do the following:

• Lower monthly student loan payments,
• Lower the amount spent on taxes, and;
• Build retirement savings.

The approach is especially powerful for borrowers working towards student loan forgiveness because it means more debt will be forgiven in the end.

Unfortunately, not all borrowers are in a position to set aside extra money for retirement. The good news is that there are other ways to lower your AGI. Borrowers should seek out tax breaks that are considered to be above-the-line. I’ll skip the details on AGI calculations, and just point out that any above-the-line deduction will reduce the AGI.

The post Student Loan Discretionary Income Calculator  appeared first on The Student Loan Sherpa.

Married borrowers are often expected to pay more on their federal student loans than a borrower with the same income who happens to be single.

Income-driven repayment plans are one of the great perks about federal loans because they help ensure that student loan borrowers can always afford their monthly student loan payments.

Unfortunately, the formula for determining what a borrower can afford often includes the salary of their husband or wife.

There is no question that there is a penalty for married borrowers. Instead, the question is, how do I handle this situation and minimize the expense?

The good news is that there are several ways to address this problem.

How can my husband or wife’s income increase my monthly fed loan payment?

Before jumping into possible solutions, it is worthwhile to take a moment to understand why spousal income can cause student loan bills to go up. After all, solving a problem can be really difficult if we don’t understand the problem we are trying to solve.

Borrowers enrolled in an income-driven repayment plan for their federal loans have to certify their income each year. Typically, this income certification takes place using the borrower’s most recent tax return.

The borrower’s Adjusted Gross Income (AGI) will determine monthly payments. When couples file their taxes, the AGI is calculated based upon the combined income of the couple.

Based upon the rules currently in place, the government has decided that an individual’s ability to make payments on their student loans changes based upon the income of their spouse. If your husband or wife has a large income, the government expects you to pay more.

Fortunately, there are a couple of tricks that can be used to minimize the marriage penalty for student loans.

A Special Note for Couples who both have federal loans: Getting married may cause changes in student loan payments.

Some couples worry that their monthly payments will double. This isn’t the case.

However, it is possible that there will still be a marriage penalty, especially for couples with children.

Can I just use a paystub to certify income so that my spouse’s income isn’t included?

If the combined AGI is the number that causes the problem, it would stand to reason that submitting alternative documentation of income, such as a paystub, would fix the issue.

Sadly, it isn’t that simple.

When borrowers certify their income, the form requires information about marital status and spousal income.

Alternative documentation of income will not exclude your husband or wife’s income.

However, there is one tax decision that can make a big difference…

Filing Taxes Separately

Couples that file their taxes as “married filing separately” do not have to include spousal income when calculating monthly payments on certain income-driven repayment plans.

Unfortunately, this approach isn’t necessarily an easy call for married borrowers.

By filing separately, the IRS may impose a larger tax bill. Many important tax breaks are not available to individuals who file separately. Notably, couples that file separately cannot take the student loan interest deduction.

Further, filing separately only helps with certain income-driven repayment plans. Borrowers on the IBR, PAYE, and ICR plans can lower their tax bill by filing separately, but those on REPAYE will still have to include spousal income.

When it comes to tax strategy, many different variables enter the equation. Those considering this route should review the issues that come into play when filing separately to save money on student loans.

Changing Repayment Plans

Not all repayment plans require income documentation.

Borrowers looking for lower monthly payments may be better off with the graduated or extended repayment plans. Monthly payments on these plans are based upon the borrower’s balance. To get an idea of what your payments might be on the various plans, the Department of Education’s Student Loan Repayment Estimator is an excellent tool.

Those considering switching repayment plans need to carefully consider the impact on student loan forgiveness. While the income-driven plans qualify for multiple types of student loan forgiveness, the graduated and extended plans are not eligible.

Aggressive Repayment of the Debt

Some borrowers may find that the higher monthly payment is more of an annoyance than a huge financial burden.

Couples in this situation may want to consider aggressively repaying the debt.

The idea here is that the faster the debt is paid off, the less will be spent on interest. Paying more now means savings in the future. Many refinance lenders will also refinance the loans at a lower interest rate to help borrowers find additional savings.

The downside of aggressive repayment is that you are taking student loan forgiveness off the table. For some borrowers, this is a savvy move; for others, it might be a bit too risky.

Should we consider a divorce?

If there is a “marriage penalty” to student loan borrowers, it would seem that divorce might seem like a possible solution.

While there may be potential student loan savings to be had, getting a divorce involves far more than just signing a couple of forms.

In addition to the many financial and social consequences of a divorce, there are other issues that borrowers must consider. One example would be visiting your spouse during a hospital stay. Those that are divorced have significantly fewer legal rights.

Anyone seriously considering this step should sit down with a divorce attorney so that they can understand the many consequences to getting a divorce purely for financial reasons.

An Important Final Thought

Much of this article has discussed how marriage can impact minimum monthly payments on income-driven repayment plans.

Those planning their student loan repayment strategy should focus on debt elimination rather than monthly payments. For most borrowers, the loan will have to be paid off in full. Paying extra money each month may not be convenient, but it will save money in the long run.

Don’t get carried away focusing on the next 12 months. Instead, think about the next 12 years.

The post Help! My Student Loan Payment Went Up Because I Got Married! appeared first on The Student Loan Sherpa.