The Student Loan Tax Loophole That Could Save You Thousands

  • FitBUX
  • |
  • The Student Loan Tax Loophole That Could Save You Thousands
Author: Joseph Reinke, CFA

If you’re on an Income-Driven Repayment (IDR) plan, or planning to be, there’s a little-known tax loophole that could save you $20,000โ€“$100,000 over the life of your student loans.

Most borrowers unknowingly overpay on their student loans simply because they arenโ€™t aware of how their tax filing status affects their payments. But today, weโ€™re going to change that.

In this article, youโ€™ll learn exactly how this loophole works, who it applies to, and the #1 mistake to avoid when using it.

ย 

How the IDR Tax Loophole Works

When you’re on an IDR planโ€”such as IBR, PAYE, or REPAYEโ€”your monthly student loan payment is calculated based on your adjusted gross income (AGI).

If youโ€™re married and file your taxes jointly, your payment is based on your combined income, which can result in a significantly higher monthly bill. But hereโ€™s the loophole:

Step 1: File Separately to Lower Your Payments
By filing taxes as “Married Filing Separately,” only your income (not your spouse’s) is used to calculate your IDR payment. This often results in a much lower required payment.

Step 2: Amend Later to Reclaim Your Tax Benefits
After your lower student loan payments are locked in, you can later amend your tax return to file jointly and reclaim tax benefits such as a higher standard deduction and better tax credits.

Example: How Much Could You Save?

Letโ€™s say Sarah and James are married, and together they earn $120,000 per year. If they file jointly, their student loan payment could be $1,200 per month.

However, if Sarah files separately, her loan payment is based solely on her income of $60,000, reducing her monthly payment to $350.

By using this strategy, they save $850 per monthโ€”over $10,000 per year on student loan payments. Then, by amending their tax return later, they get their tax refund back as if they had originally filed jointly.


Who Can Benefit from This Strategy?

This strategy isnโ€™t just for married couples. Itโ€™s valuable for:

  • Anyone currently on an IDR plan who is married or considering marriage.
  • Students who will be using IDR in the future and want to plan ahead.
  • Borrowers pursuing student loan forgiveness who want to minimize payments.

If you fall into any of these categories, taking advantage of this loophole could result in massive savings.


The #1 Mistake People Make When Filing Separately

While this strategy can work wonders, thereโ€™s one crucial mistake many people make: they forget about Roth IRA contributions.

When you file separately, your ability to contribute to a Roth IRA directly can be limited or even eliminated depending on your income. This could mean missing out on tax-free growth for your retirement.

Solution:
If you’re planning to file separately, consider a Backdoor Roth IRA conversion to ensure you’re still taking advantage of this powerful retirement savings tool.


How to Take Action

Feeling overwhelmed? Donโ€™t worryโ€”weโ€™re building software that will do all of this for you!

Our tool will:

โœ”๏ธ Analyze your tax situation.
โœ”๏ธ Recommend the best filing strategy.
โœ”๏ธ Automate amendments to maximize your savings.

Join our beta program now and be among the first to experience a smarter way to manage your student loans and taxes.

๐Ÿ‘‰ Sign Up for the Beta Program Here

ย 


Final Thoughts

Filing taxes the right way could be the key to unlocking massive student loan savings. Whether you’re married, planning to get married, or still in school, taking advantage of this loophole could help you keep thousands of dollars in your pocket.

Have questions? Drop them in the comments belowโ€”Iโ€™m happy to help!

And donโ€™t forget to share this article with anyone you know whoโ€™s on an IDR planโ€”help them avoid costly mistakes and take control of their financial future.


Joseph Reinke, CFA

Follow me here

About the Author

Joseph Reinke is a Chartered Financial Analyst (CFA) Charter Holder and founder of FitBUX which has helped over 14,000 young professionals on their journey to financial freedom. Joseph has been personally investing since he was 12 years old.

In addition, he has experience in student loans, mortgages, wealth management, investment banking, valuation, stock trading, and option trading. He has been on 100s of podcast and has been invited to 100s of universities to discuss financial planning with their soon to be graduates.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}
>