Student Loan Repayment Calculator
Module A: Introduction & Importance
Understanding how student loans are calculated is crucial for every borrower. Student loans represent one of the most significant financial commitments many people will make in their lifetime, often rivaling mortgage debt in both size and duration. The calculation of student loan repayments involves several key factors including the principal amount, interest rate, loan term, and repayment plan type.
According to the U.S. Department of Education, over 43 million Americans currently hold federal student loan debt totaling more than $1.6 trillion. This staggering figure underscores why comprehending loan calculations isn’t just academic—it’s a financial necessity that can save borrowers thousands of dollars over the life of their loans.
Why This Matters
- Financial Planning: Knowing your exact monthly obligation helps with budgeting and long-term financial planning.
- Interest Savings: Understanding how interest accrues can motivate borrowers to make extra payments and save thousands.
- Repayment Strategy: Different repayment plans can dramatically affect your total cost—standard plans may cost less overall than income-driven plans.
- Career Decisions: Loan burdens can influence career choices, graduate school decisions, and major life events like home purchases.
- Policy Awareness: Understanding the mechanics makes you a more informed participant in discussions about student loan policy and potential reforms.
Module B: How to Use This Calculator
Our student loan calculator provides a comprehensive view of your repayment obligations. Follow these steps to get the most accurate results:
Step-by-Step Instructions
-
Enter Your Loan Amount:
- Input the total amount you’ve borrowed or plan to borrow
- Include both subsidized and unsubsidized loans
- For multiple loans, you can either:
- Calculate each loan separately
- Combine the totals for an aggregate view
-
Specify Your Interest Rate:
- Federal loan rates vary by year and loan type (current rates available at StudentAid.gov)
- For variable rate loans, use the current rate
- Private loans may have different rates—check your lender’s documentation
-
Select Your Loan Term:
- Standard federal repayment term is 10 years
- Extended plans can go up to 25 years
- Income-driven plans may extend to 20-25 years
-
Choose Your Repayment Plan:
- Standard: Fixed payments over 10 years (usually the cheapest option)
- Graduated: Payments start lower and increase every 2 years
- Income-Driven: Payments based on your discretionary income (10-20% typically)
-
Set Your Start Date:
- Use your actual or anticipated disbursement date
- For existing loans, use your first payment date
- Future dates will show projected payoff timelines
-
Review Your Results:
- Monthly payment amount
- Total interest paid over the life of the loan
- Total repayment amount (principal + interest)
- Projected payoff date
- Visual amortization chart showing principal vs. interest
Pro Tip: For the most accurate results with federal loans, gather your specific loan details from your StudentAid.gov account or your loan servicer’s website. Private loan borrowers should consult their loan agreements for precise terms.
Module C: Formula & Methodology
The mathematics behind student loan calculations can appear complex, but breaks down into manageable components. Our calculator uses industry-standard formulas to provide accurate repayment estimates.
Standard Repayment Plan Formula
For fixed-payment plans (like the Standard Repayment Plan), we use the amortization formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = monthly payment
P = principal loan amount
i = monthly interest rate (annual rate divided by 12)
n = number of payments (loan term in years × 12)
Graduated Repayment Plan
Graduated plans use a more complex calculation that typically:
- Starts with payments covering only the accrued interest
- Gradually increases payments every 2 years
- Ensures the loan is fully paid by the end of the term
- Generally results in higher total interest than standard plans
Income-Driven Repayment Plans
These plans (including IBR, PAYE, REPAYE, and ICR) calculate payments as:
Monthly Payment = (Adjusted Gross Income – Poverty Guideline) × Percentage Factor
- Percentage factors:
- IBR (pre-2014): 15%
- IBR (post-2014), PAYE, REPAYE: 10%
- ICR: 20%
- Payments are recalculated annually based on updated income
- Any remaining balance is forgiven after 20-25 years
- Forgiven amounts may be taxable as income
Interest Capitalization
An important but often overlooked aspect of student loan calculations is interest capitalization, which occurs when:
- Unpaid interest is added to the principal balance
- Common triggers include:
- End of grace periods
- End of deferment/forbearance
- Switching repayment plans
- Loan consolidation
- Capitalization increases your principal, causing you to pay interest on interest
- Our calculator assumes no capitalization for simplicity
Module D: Real-World Examples
To illustrate how different factors affect repayment, let’s examine three realistic scenarios using actual student loan data patterns.
Case Study 1: The Standard Borrower
Profile: Recent college graduate with $30,000 in loans at 4.5% interest
| Repayment Plan | Monthly Payment | Total Interest | Total Paid | Payoff Date |
|---|---|---|---|---|
| Standard (10 years) | $311.26 | $7,351.20 | $37,351.20 | May 2034 |
| Graduated (10 years) | $187.50 → $468.75 | $8,137.50 | $38,137.50 | May 2034 |
| Income-Driven (20 years) | $150.00 (assuming $50k salary) | $18,480.00 | $48,480.00 | May 2044 |
Key Takeaway: The standard plan saves $11,128.80 compared to income-driven over the life of the loan, though monthly payments are higher.
Case Study 2: The Graduate Student
Profile: Professional degree holder with $120,000 at 6.8% interest
| Repayment Plan | Monthly Payment | Total Interest | Total Paid | Payoff Date |
|---|---|---|---|---|
| Standard (10 years) | $1,380.36 | $45,643.20 | $165,643.20 | June 2034 |
| Extended (25 years) | $851.68 | $155,504.00 | $275,504.00 | June 2049 |
| Income-Driven (25 years) | $723.00 (assuming $80k salary) | $217,800.00 | $337,800.00 | June 2049 |
Key Takeaway: Higher balances make interest costs explode with extended terms. The standard plan saves $172,156.80 compared to income-driven.
Case Study 3: The Community College Graduate
Profile: Associate degree holder with $15,000 at 3.73% interest
| Repayment Plan | Monthly Payment | Total Interest | Total Paid | Payoff Date |
|---|---|---|---|---|
| Standard (10 years) | $150.55 | $2,966.00 | $17,966.00 | April 2034 |
| Graduated (10 years) | $87.50 → $220.00 | $3,250.00 | $18,250.00 | April 2034 |
| Income-Driven (20 years) | $75.00 (assuming $35k salary) | $6,300.00 | $21,300.00 | April 2044 |
Key Takeaway: For smaller balances, the difference between plans is less dramatic, but standard repayment still saves $3,334.00.
Module E: Data & Statistics
The student loan landscape has evolved dramatically over the past two decades. These tables present key data points that contextually frame the importance of understanding loan calculations.
Federal Student Loan Interest Rates (2013-2023)
| Academic Year | Undergraduate Direct Loans | Graduate Direct Loans | Direct PLUS Loans |
|---|---|---|---|
| 2023-2024 | 5.50% | 7.05% | 8.05% |
| 2022-2023 | 4.99% | 6.54% | 7.54% |
| 2021-2022 | 3.73% | 5.28% | 6.28% |
| 2020-2021 | 2.75% | 4.30% | 5.30% |
| 2019-2020 | 4.53% | 6.08% | 7.08% |
| 2018-2019 | 5.05% | 6.60% | 7.60% |
| 2017-2018 | 4.45% | 6.00% | 7.00% |
| 2016-2017 | 3.76% | 5.31% | 6.31% |
| 2015-2016 | 4.29% | 5.84% | 6.84% |
| 2014-2015 | 4.66% | 6.21% | 7.21% |
| 2013-2014 | 3.86% | 5.41% | 6.41% |
Source: U.S. Department of Education
Student Loan Debt by Degree Type (2023)
| Degree Type | Average Debt | % of Graduates with Debt | Median Monthly Payment | Typical Repayment Term |
|---|---|---|---|---|
| Associate Degree | $19,000 | 42% | $200 | 10 years |
| Bachelor’s Degree | $37,574 | 65% | $393 | 10-15 years |
| Master’s Degree | $71,000 | 56% | $745 | 15-20 years |
| MBA | $66,300 | 48% | $700 | 10-20 years |
| Law Degree (JD) | $165,000 | 90% | $1,736 | 20-25 years |
| Medical Degree (MD) | $201,490 | 76% | $2,115 | 20-30 years |
| PhD | $98,800 | 53% | $1,037 | 20-25 years |
Source: EducationData.org
Key Trends to Note
- Rising Interest Rates: Rates have increased significantly since the historic lows of 2020-2021, making new loans more expensive.
- Degree ROI Variability: The relationship between debt levels and earning potential varies dramatically by field of study.
- Extended Repayment Prevalence: Higher debt loads have made 20-25 year repayment terms increasingly common.
- Income-Driven Growth: Over 40% of federal loan borrowers are now on income-driven plans, up from 10% in 2010.
- Private Loan Share: While federal loans dominate, private loans now account for about 8% of total student debt.
Module F: Expert Tips
After helping thousands of borrowers optimize their student loan repayment strategies, we’ve compiled these expert-recommended tactics to save money and reduce stress.
Before You Borrow
-
Exhaust Free Money First:
- Complete the FAFSA annually to qualify for grants and scholarships
- Research institutional aid from your school
- Investigate state-specific financial aid programs
- Apply for private scholarships (use reputable databases like Fastweb or Scholarships.com)
-
Borrow Only What You Need:
- Accept the minimum loan amount required to cover essential expenses
- Remember: You can always request additional funds later if needed
- Consider part-time work or work-study to reduce borrowing
-
Understand Your Loans:
- Know the difference between subsidized (no interest during school) and unsubsidized loans
- Track each loan’s interest rate and origination fees
- Note when interest begins accruing (varies by loan type)
-
Compare Private vs. Federal:
- Federal loans offer income-driven plans, forgiveness options, and deferment/forbearance
- Private loans may offer lower rates for creditworthy borrowers but lack protections
- Never mix loan types without understanding the tradeoffs
During Repayment
-
Make Payments During Grace Period:
- Interest accrues on unsubsidized loans during grace periods
- Even small payments can reduce your total interest significantly
- Set up automatic payments to start immediately after graduation
-
Prioritize High-Interest Loans:
- Use the “avalanche method” – pay minimums on all loans, then put extra toward the highest-rate loan
- For multiple loans, consider consolidation (but weigh the pros/cons carefully)
- Refinance private loans if you can secure a lower rate (but don’t refinance federal loans unless you’re certain you won’t need federal protections)
-
Leverage Autopay Discounts:
- Most servicers offer a 0.25% interest rate reduction for autopay
- This small reduction can save hundreds over the life of your loan
- Ensure your bank account always has sufficient funds to avoid fees
-
Make Biweekly Payments:
- Split your monthly payment in half and pay every two weeks
- Results in 13 full payments per year instead of 12
- Can shave years off your repayment term
-
Claim the Student Loan Interest Deduction:
- Up to $2,500 in interest payments may be tax-deductible
- Phase-outs begin at $70,000 MAGI ($140,000 for joint filers)
- Use IRS Form 1098-E provided by your servicer
Advanced Strategies
-
Pursue Employer Assistance:
- Some employers offer student loan repayment assistance (up to $5,250/year tax-free)
- Check with your HR department about available programs
- Consider this benefit when evaluating job offers
-
Explore Forgiveness Programs:
- Public Service Loan Forgiveness (PSLF) for government/nonprofit employees
- Teacher Loan Forgiveness for eligible educators
- State-specific forgiveness programs for certain professions
- Military service may qualify for partial or complete forgiveness
-
Strategic Refinancing:
- Only refinance federal loans if:
- You have excellent credit and can secure a significantly lower rate
- You’re certain you won’t need federal protections
- You don’t qualify for forgiveness programs
- Compare multiple lenders (including credit unions)
- Watch for hidden fees or prepayment penalties
- Only refinance federal loans if:
-
Income-Driven Plan Optimization:
- Time major life events (marriage, children) to minimize AGI when possible
- Consider filing taxes separately if married to exclude spouse’s income
- Recertify income annually to avoid payment shocks
- Understand the tax implications of potential forgiveness
-
Emergency Preparedness:
- Build a 3-6 month emergency fund to avoid missing payments
- Know your servicer’s forbearance options before you need them
- Consider income-driven plans as a safety net during financial hardship
- Never ignore delinquency notices—contact your servicer immediately
Critical Warning: Beware of student loan “debt relief” companies charging fees for services you can do yourself for free through your servicer or the Department of Education. Always verify any company’s legitimacy through the Federal Student Aid office.
Module G: Interactive FAQ
How does student loan interest accrue during school?
Interest accrual depends on the loan type:
- Direct Subsidized Loans: No interest accrues while you’re in school at least half-time, during the grace period, or during deferment periods.
- Direct Unsubsidized Loans: Interest begins accruing immediately after disbursement, including while you’re in school.
- Direct PLUS Loans: Interest begins accruing immediately after disbursement.
- Private Loans: Varies by lender—some accrue interest immediately, others offer deferred interest options.
For unsubsidized and PLUS loans, you can either:
- Let the interest capitalize (add to your principal) when repayment begins, or
- Make interest-only payments while in school to prevent capitalization
Capitalized interest increases your total loan cost significantly. For example, $30,000 at 4.5% accruing for 4 years would add about $5,400 to your principal if capitalized.
What’s the difference between deferment and forbearance?
Both options temporarily postpone your payments, but with important differences:
| Feature | Deferment | Forbearance |
|---|---|---|
| Interest Accrual | No interest on subsidized loans; yes on unsubsidized | Interest always accrues |
| Eligibility | Specific qualifications (enrollment, unemployment, economic hardship, etc.) | Discretionary (servicer may grant for financial difficulties or other reasons) |
| Duration | Typically up to 3 years cumulative | Typically up to 12 months at a time, 3 years cumulative |
| Application | Must meet specific criteria and apply | Easier to qualify; servicer has more discretion |
| PSLF Impact | Periods may count toward PSLF if other requirements met | Periods generally don’t count toward PSLF |
Expert Advice: Always exhaust deferment options before using forbearance, as forbearance is more expensive due to interest accumulation. During either period, consider making interest-only payments if possible to prevent capitalization.
How does loan consolidation work and should I do it?
Loan consolidation combines multiple federal student loans into a single new loan with a weighted average interest rate rounded up to the nearest 1/8%. Here’s what you need to know:
Pros of Consolidation:
- Single monthly payment instead of multiple payments
- Potential access to additional repayment plans
- Can extend your repayment term (up to 30 years) to lower monthly payments
- May make you eligible for PSLF if you have FFEL or Perkins Loans
Cons of Consolidation:
- May lose borrower benefits (like interest rate discounts or principal rebates)
- Extended terms mean paying more interest over time
- Any outstanding interest capitalizes
- Private loans cannot be consolidated with federal loans
When Consolidation Makes Sense:
- You have multiple federal loans and want simpler management
- You need to access income-driven repayment plans not available for your current loans
- You have older loan types (like FFEL) and want PSLF eligibility
- You’re struggling with monthly payments and need a longer term
When to Avoid Consolidation:
- You’re close to paying off your loans
- You have a mix of high and low interest rates (consolidation uses a weighted average)
- You’re pursuing PSLF and have already made qualifying payments
- You have Perkins Loans (which have unique cancellation benefits)
How to Consolidate: Apply for free at StudentAid.gov. Never pay a company to consolidate your federal loans—this is a free government service.
Can I deduct student loan interest on my taxes?
Yes, the student loan interest deduction allows you to reduce your taxable income by up to $2,500 per year for interest paid on qualified student loans. Here are the key details:
Eligibility Requirements:
- You paid interest on a qualified student loan during the tax year
- Your filing status is not “married filing separately”
- Your modified adjusted gross income (MAGI) is below the phase-out limits:
- 2023: $70,000 ($140,000 for joint returns)
- Phase-out begins at $70,000 ($140,000 joint) and ends at $85,000 ($170,000 joint)
- You’re legally obligated to pay the interest (you can’t claim the deduction if someone else is legally required to pay the interest)
What Qualifies:
- Interest on federal and private student loans
- Loan must have been taken out solely to pay qualified education expenses
- Expenses must have been for you, your spouse, or your dependent
- Voluntary payments (extra payments beyond the required amount) count if allocated to interest
How to Claim:
- Your loan servicer should send you Form 1098-E showing the interest paid
- Enter the amount on Schedule 1 (Form 1040), line 20
- The deduction is taken “above the line,” meaning you don’t need to itemize to claim it
- Keep records of all payments in case of IRS questions
Special Considerations:
- If your parents pay your student loan interest, they may be able to claim the deduction if they claim you as a dependent
- Refinanced loans may still qualify if used to pay off qualified student loans
- The deduction reduces your taxable income, not your tax bill directly
- State tax treatments may differ—check your state’s rules
Example: If you’re in the 22% tax bracket and qualify for the full $2,500 deduction, you’d save $550 on your federal tax bill.
What happens if I can’t make my student loan payments?
If you’re struggling to make payments, it’s crucial to act quickly—ignoring the problem will only make it worse. Here’s a step-by-step guide to handling payment difficulties:
Immediate Actions:
- Contact Your Servicer Immediately:
- Explain your financial situation
- Ask about all available options
- Document all communications
- Review Your Budget:
- Identify non-essential expenses to cut
- Consider temporary side income
- Prioritize loan payments to avoid default
Short-Term Solutions:
- Change Repayment Plans:
- Switch to an income-driven plan to lower payments
- Extended or graduated plans may offer temporary relief
- Request Forbearance:
- Temporarily pauses payments (interest continues to accrue)
- Typically granted for 12 months at a time
- Use this only as a last resort due to interest costs
- Deferment:
- Postpones payments for specific situations (unemployment, economic hardship)
- Interest may not accrue on subsidized loans
- Better option than forbearance if you qualify
Long-Term Strategies:
- Loan Rehabilitation:
- For defaulted federal loans
- Requires 9 on-time payments within 10 months
- Removes default status from your credit report
- Loan Consolidation:
- Can get you out of default
- May give access to income-driven plans
- Resets your repayment term
- Forgiveness Programs:
- Public Service Loan Forgiveness (PSLF) for government/nonprofit workers
- Teacher Loan Forgiveness for eligible educators
- Income-driven plan forgiveness after 20-25 years
Consequences of Default:
Failing to make payments for 270 days (about 9 months) puts federal loans in default, with severe consequences:
- Entire loan balance becomes due immediately
- Loss of eligibility for deferment, forbearance, and repayment plans
- Loss of eligibility for additional federal student aid
- Collection costs (up to 25% of payments) added to your balance
- Wage garnishment (up to 15% of disposable pay)
- Treasury offset (tax refunds and other federal payments seized)
- Damage to credit score (can drop 100+ points)
- Potential legal action and lawyer fees
Resources for Help:
- Federal Student Aid Repayment Options
- Getting Out of Default
- Nonprofit credit counseling agencies (like NFCC.org members)
- Your school’s financial aid office (for recent graduates)
Critical Warning: Never ignore delinquency notices or collection attempts. The earlier you address payment problems, the more options you’ll have and the less damage to your credit and finances.
How do I know if refinancing my student loans is a good idea?
Refinancing can be an excellent strategy for some borrowers but a costly mistake for others. Use this decision framework to evaluate whether refinancing makes sense for your situation:
When Refinancing MAY Be a Good Idea:
- You have private student loans with high interest rates
- You have excellent credit (typically 680+ FICO score)
- You have stable income and employment
- You can secure a significantly lower interest rate (at least 1-2% lower than your current rate)
- You have a high debt-to-income ratio and need lower monthly payments
- You’re not pursuing loan forgiveness (like PSLF)
- You don’t need federal loan protections (income-driven plans, deferment, etc.)
When to AVOID Refinancing:
- You have federal loans and might need:
- Income-driven repayment plans
- Public Service Loan Forgiveness
- Deferment or forbearance options
- Loan discharge options (like for disability or school closure)
- Your credit score is poor (you likely won’t qualify for better rates)
- You’re unemployed or have unstable income
- The refinance offer has:
- Higher interest rates than your current loans
- Variable rates (unless you plan to pay off quickly)
- Prepayment penalties
- High origination fees
- You’re close to paying off your loans (refinancing may not be worth the effort)
Refinancing Process Checklist:
- Check Your Credit:
- Get free reports from AnnualCreditReport.com
- Dispute any errors before applying
- Aim for a score above 680 for best rates
- Compare Multiple Lenders:
- Use comparison sites like Credible or NerdWallet
- Check with credit unions (often have competitive rates)
- Look at both interest rates and repayment terms
- Calculate Potential Savings:
- Use refinancing calculators to compare scenarios
- Consider both monthly savings and total interest costs
- Watch for extended terms that might cost more long-term
- Gather Documentation:
- Loan statements showing current balances
- Proof of income (pay stubs, tax returns)
- Government-issued ID
- Proof of graduation (for some lenders)
- Apply Strategically:
- Submit applications within a 14-45 day window to minimize credit score impact
- Consider adding a creditworthy cosigner if needed
- Be prepared for a hard credit pull
- Review Final Offers Carefully:
- Compare APRs (not just interest rates)
- Check for any hidden fees
- Understand prepayment penalties
- Confirm the lender reports to credit bureaus
Top Refinancing Lenders (2023):
| Lender | Best For | Min. Credit Score | Variable Rates | Fixed Rates | Loan Terms |
|---|---|---|---|---|---|
| SoFi | Strong financials, member benefits | 680 | 4.99% – 9.99% | 5.24% – 9.99% | 5-20 years |
| Earnest | Flexible terms, no fees | 650 | 4.98% – 9.74% | 5.24% – 9.74% | 5-20 years |
| Credible | Comparison shopping | 670 | Varies by lender | Varies by lender | 5-20 years |
| CommonBond | Social impact focus | 660 | 5.00% – 9.74% | 5.25% – 9.74% | 5-20 years |
| Local Credit Unions | Personal service, potential discounts | Varies | Often competitive | Often competitive | Varies |
Important: Rates and terms change frequently. Always check the most current offers directly with lenders. The rates shown are representative examples and your actual rate will depend on your credit profile and other factors.
How does marriage affect my student loan repayment?
Marriage can significantly impact your student loan repayment strategy, particularly if you’re on income-driven repayment plans or pursuing forgiveness. Here’s what you need to know:
Income-Driven Repayment Considerations:
- Joint vs. Separate Filing:
- Married filing jointly includes both spouses’ incomes in AGI calculation
- Married filing separately uses only your income (but you lose some tax benefits)
- For IBR/PAYE/REPAYE, filing separately can dramatically lower payments if your spouse has higher income
- Plan-Specific Rules:
- REPAYE: Always includes spouse’s income, regardless of tax filing status
- PAYE/IBR: Can exclude spouse’s income if filing separately
- ICR: Can exclude spouse’s income if filing separately, but uses a different calculation
- Potential Tax Implications:
- Filing separately may disqualify you from certain tax credits/deductions
- Student loan interest deduction phase-outs are lower for separate filers
- Consult a tax professional to model both scenarios
Public Service Loan Forgiveness (PSLF):
- Marriage doesn’t directly affect PSLF eligibility
- However, increased household income may:
- Increase your income-driven payments
- Potentially reduce the amount forgiven
- Make standard repayment more attractive
- If both spouses have PSLF-eligible employment:
- Can coordinate repayment strategies
- May benefit from filing jointly to maximize tax benefits
Private Student Loans:
- Marriage itself doesn’t affect private loan terms
- Some lenders may offer “spousal consolidation” loans:
- Combines both spouses’ loans into one
- Both become equally responsible for the debt
- Rarely recommended due to loss of individual protections
- Refinancing together may get you better rates if:
- One spouse has significantly better credit
- You want to simplify finances
- You’re comfortable with joint liability
State-Specific Considerations:
- Community property states (AZ, CA, ID, LA, NV, NM, TX, WA, WI) may treat student debt differently in divorce
- Some states consider student loans taken during marriage as joint debt
- Prenuptial agreements can specify responsibility for student loans
Divorce Implications:
- Federal student loans remain the responsibility of the original borrower
- Private loans may be treated differently depending on state law and loan agreements
- Courts generally cannot transfer federal student loan responsibility to a spouse
- Divorce decrees assigning loan responsibility to a spouse aren’t binding on lenders
Strategic Planning Tips:
- Before Marriage:
- Discuss each partner’s student loan situation openly
- Consider a prenup if one partner has significant debt
- Model how marriage will affect income-driven payments
- After Marriage:
- Run tax scenarios for joint vs. separate filing
- Consider refinancing private loans if you can get better rates together
- Coordinate repayment strategies if both have student debt
- If Pursuing Forgiveness:
- Carefully choose repayment plans based on combined income
- Consider filing separately if it significantly lowers payments
- Model the long-term costs of different strategies
- For High-Earning Couples:
- Aggressive repayment may be better than income-driven plans
- Consider refinancing federal loans if you won’t need protections
- Maximize tax-advantaged accounts to reduce AGI
Case Example: Sarah and Michael both have student loans. Sarah has $50,000 at 6% on REPAYE, and Michael has $30,000 at 4.5% on PAYE. Their combined income is $120,000.
Option 1 – File Jointly:
- AGI: $120,000
- Sarah’s REPAYE payment: ~$700 (includes both incomes)
- Michael’s PAYE payment: ~$400 (includes both incomes)
- Total payment: $1,100
- Tax benefits: Full standard deduction, other joint filing benefits
Option 2 – File Separately:
- Sarah’s AGI: $70,000
- Sarah’s REPAYE payment: ~$700 (still includes Michael’s income)
- Michael’s AGI: $50,000
- Michael’s PAYE payment: ~$250 (only his income)
- Total payment: $950
- Tax costs: Lose some deductions/credits, higher taxable income
In this case, filing separately saves $150/month on student loans, but they need to compare this to potential tax costs.