How a 40-year-old physical therapist was able to get $222,000 in school loans erased
The 40-year-old physical therapist used a tax strategy to pay the least amount feasible while earning $222,000 in school debt forgiveness under PSLF.
After graduating from Emory University in 2010, physical therapist and Family Abide podcast host Robert Metzger Jr. had six figures in debt.
He was able to maintain low interest rates thanks to the Public Service Loan Forgiveness Program, which allowed him to get his loans erased a decade later.
"At Emory, I first learned about the Public Service Debt Forgiveness Program (PSLF), a student loan forgiveness program tailored for public servants working for nonprofit, governmental, or tribal organizations," Metzger tells Insider. After 120 qualified payments, or roughly 10 years, the PSLF forgives student debts for government workers.
Knowing this, 40-year-old Metzger made the decision to look for work in the charity industry. He secured employment in a charitable hospital in 2012. She was, nonetheless, resolved to make the smallest loan payments feasible. She enrolled in an income-driven repayment (IDR) scheme, but her first year of earnings were so meager that she could contribute no money toward her student loans at all.
Before the pandemic in 2020, payments grew to $956 per month from $413 per month in 2015 as income improved, but she persisted in maximizing fees to make her student loan payments as low as feasible. I paid between $55,000 and $60,000 over the course of the 10 years, he claims, without making a dent in the principal.
His bet was successful. Insider's research revealed that Metzger earned $221,804 in student debt forgiveness from PSLF (a temporary waiver is currently in place to allow more public employees to benefit from PSLF). This exclusion runs out on October 31. To apply, go here.
He employed this tax method to pay off his college loans as little as feasible.
He decreased his AGI by using his FSA and pension payments.
His tax return's gross yearly income is used to determine his AGI. Metzger understood that he could lower his monthly student loan payments by as much as he could cut his salary.
Metzger put as much money into his FSA account as he could to lower his AGI. An FSA is an account that you may fund with pre-tax money from your salary to expressly pay for childcare or medical expenditures, comparable to a health savings account (HSA).
Your taxable income is reduced by these pre-tax contributions. FSA payments are not counted as part of the W-2 income that is calculated using AGI, according to accountant Akeiva Ellis. For instance, if your gross annual salary is $50,000 and you make a $1,000 FSA contribution, your W-2 will only reflect $49,000 of your income. In order to lower their AGI, Mr. Metzger and his wife Charity Metzger both made a $7,800 regular and employee contribution to their FSA.
The same is true for retirement plan contributions. The Metzgers also make an additional $14,000 in year pension contributions to lower their AGI in return for less monthly pension payouts.
It should be noted that this AGI decrease is not always advantageous. The founder of Childfree Wealth, Jay Zigmont, contends that a lesser amount when applying for a mortgage or other loan might be justified by a lower taxable income on a tax return.
Another drawback, according to him, is that you might not have enough money to cover your expenses and that whatever money you saved before taxes would have to be paid in taxes at a later date.
Read: How to Find Unredeemed Retirement Benefits
How can I find out if my student loans will be discharged?
According to a White House announcement, borrowers who are single and make less than $125,000 annually or families who make less than $250,000 annually would be eligible for a $10,000 debt forgiveness. For a total of $20,000 in loan forgiveness, borrowers with salaries below the maximum who get Pell grants while attending college will also receive an extra $10,000.
Which loans from college are forgiven?
Nearly all federal student loan programs, including Direct Subsidized and Unsubsidized Loans as well as PLUS Loans for Graduate Students or Parents, are eligible for forgiveness.
What student debt is not discharged?
The Biden debt reduction plan does not apply to what kinds of student loans? Unless they have previously been consolidated through the government's direct loan program, private student loans, including federal loans granted by private banks, are often excluded from the program.
What is the cost of paying off a student loan?
The smaller of $10,000 or the outstanding loan sum may be forgiven if you satisfy the means test and have federal student loans. You are qualified for up to $20,000 in debt reduction if you have obtained a Pell Grant in addition to your student loans.
Will Biden be able to forgo student loans?
Biden's three-pronged strategy for reducing student debt exclusively addresses the issue of federal student debt. Since private student loans are managed by private companies, they are excluded from the current debt reduction initiatives and programs.
Can parents qualify for student loan forgiveness?
Like their children, eligible parents may also submit a separate application for the cancellation of student loan debt. The Century Foundation estimates that the overall debt of the 3.7 million families with parent PLUS loans is $104 billion, with a median family debt of $29,600.