Taxes and student loans are intertwined: Why GradFin is now offering a new tax service for student loan borrowers
Tax filing status is particularly important for married student loan borrowers who are enrolled in an income-driven repayment (IDR) plan. Whether married borrowers file jointly or separately has implications on their student loan payments. When a borrower is enrolled in an IDR plan, the monthly payment amount is determined by their last-filed tax return. The monthly payment amount is determined by taking 10% (depending on your income-driven repayment plan) of your disposable income and dividing it into twelve equal monthly payments. Disposable income is calculated by subtracting 150% of the federal poverty line from your adjusted gross income (AGI).
Due to the fact that IDR plan payments are calculated using AGI, borrowers can utilize tax filing strategies to positively impact their monthly student loan payments. By looking at the comparison of how much money a couple would save filing jointly and separately, you can make an informed decision about your tax filing status.
If you file taxes separately from your spouse, the payments for IDR plans are calculated based only on your AGI – this applies to two of the most popular IDR plans (Pay-As-You-Earn and Income-Based Repayment). Therefore, it may make sense to file separately in order to reduce your monthly student loan payments. However, filing taxes separately from your spouse is not always the correct decision for borrowers with IDR plans. The tax code favors spouses filing their taxes jointly. Often, married couples can save significant amounts of money on their taxes by filing jointly. Several provisions of the tax code are not available to taxpayers who use the filing “married filing separately.” For example, student loan interest can be deducted from your taxes, but this cannot be taken by married taxpayers who file their taxes separately.
GradFin CEO, Chris Walters, has previous work experience with the U.S. Treasury Department prior to starting GradFin. With his previous background, Chris saw an area of opportunity where GradFin could help borrowers with their taxes, especially for married clients who are enrolled in income-driven repayment plans. Chris explained, “Married borrowers in income-driven repayment (IDR) plans constantly ask us how they should file their taxes. We really want to help them answer this question and that is why we decided to start this service. We brought in a tax expert, Kyle Murphy, purchased tax software, and now we can provide clear guidance on this issue. We can calculate how much their tax liability will be filing separately versus jointly and compare that to their student loan liability. This is a great new resource for our student loan borrowers and allows them to make an informative decision on how tax filing impacts student loan repayment plans.”
GradFin’s Tax Planning and Preparation service can help you navigate the complexities of taxes and help you make an informed decision that will impact your taxes and student loan payments. After helping you make an informed decision on your tax filing status, GradFin will file your tax returns for you.