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Your “Adjusted Gross Income” and Ways to Reduce Your IBR Payments

July 17, 2013 | Adam S. Minsky, Esq. Income-Based Repayment

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It’s been awhile since I’ve done a “tips” type of blog post, so here you are.

Income-Based Repayment (IBR) is that great federal student loan repayment plan that allows borrowers to make monthly payments based on their income. Your IBR payment is calculated as 15% of your “discretionary income,” which is your taxable income adjusted for poverty limits and family size.

One of the easiest ways of documenting your income for purposes of getting onto IBR is to provide a copy of your tax return. Your federal loan servicer will use your Adjusted Gross Income (“AGI”) figure on your tax return as the basis for determining your monthly IBR payment. But AGI is not just your gross wages or salary. It is, as the name implies, “adjusted.” It is the portion of your salary/wages that is taxable. By making pre-tax deductions or adjustments, you can lower your AGI, and thus reduce your IBR payment. Some examples of expenses or deductions that can lower your AGI are:

  • Pre-tax retirement contributions, such as to a government pension fund, 401(K) or 403(B), or traditional Individual Retirement Account (IRA)
  • Student loan interest paid during the tax year (up to a point)
  • Certain health care-related expenses, such as through a health care Flexible Spending Account
  • Certain state and local taxes
  • Charitable donations
  • Job-related expenses if you are self-employed or have your own business
  • Mortgage interest
  • Certain moving expenses for job-related reasons

All of these adjustments can make a big difference on your monthly IBR payment. For instance, if your salary is $50,000 per year, but after deductions and adjustments your AGI is $43,000, your IBR payment for your AGI could be $90-$100/month lower than your IBR payment based on your gross earnings, saving you over $1,000 for the year.

To learn more about how you can tweak your AGI to reduce your IBR payment, talk to an accountant or qualified tax professional.

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Income-Based Repayment

About Adam S. Minsky, Esq.

Adam S. Minsky founded the first law office in Massachusetts devoted entirely to assisting student loan borrowers, and he is one of the only attorneys in the country practicing in this area of law. He provides counsel, legal assistance, and direct advocacy for borrowers on a variety of student loan-related matters. He regularly speaks to students, graduates, and advocates about the latest developments in higher education financing.

Books by Adam S. Minsky

The Student Loan Handbook for Law Students and Attorneys

The Student Loan Handbook for Law Students and Attorneys

Student Loan Debt 101

Student Loan Debt 101: The Definitive Guide to Understanding and Managing Your Student Loans

Student Loans for Parents and Cosigners

The Student Loan Guide for Parents and Cosigners

617-936-2788
asminsky@minsky-law.com
By Appointment Only 265 Franklin Street, Suite 1702
Boston, MA 02110

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