Increase in Federal Poverty Rates for 2022: Why that matters for your student loans

Each year in January, the U.S. Department of Health and Human Services (HHS) updates the federal poverty guidelines used to determine financial eligibility for certain programs. The federal student loan income-driven repayment plans are impacted by these updates.
Income-driven repayment can be extremely beneficial for veterinarians. Especially for new grads who start their careers with a student debt balance exceeding their income. When opting into an income-driven repayment plan, your minimum monthly payment is calculated as a percentage of your discretionary income.  The discretionary income formula used by the Dept of Education is:
Discretionary Income = Taxable income – 150% * HHS poverty guideline for your family size and state of residence
Let’s say you are a single veterinarian living and working in the lower 48 states and your Adjusted Gross Income (AGI) on your tax return is $99,250 for 2021. Your 2022 discretionary income calculation yields $99,250 – 1.5*$13,590 = $78,865.
Your discretionary income is used to calculate your minimum monthly student loan payment under an income-driven repayment plan.  For example, Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) calculate your payment at 10% of your discretionary income.  From the example, with a discretionary income of $78,865 your student loan payment will be no more than 0.10*$78,865 = $7,886/year or $657/month.
This represents a lower monthly student loan payment than the prior year.  The higher the poverty thresholds, the lower the monthly student loan payment will be using an income-driven repayment plan (for the same level of income and family size). 
HHS Poverty Rates 2022

Poverty Rates and Loan Repayment Simulations

We account for changes to the poverty guidelines in the VIN Foundation Student Loan Repayment Simulator. The updated 2022 Poverty Thresholds are now applied to calculations in the simulator. We also project the poverty guidelines over time. We base these future changes on the historical average updates to the poverty guidelines. For example, over the last 12 years, poverty threshold updates have been averaging a bit less than a 2% increase per year. However, in the last few years, that rate is around 2.5%, culminating in a 5% increase in 2022 from 2021 levels. You can change how the simulator increases the poverty guidelines in the future in the Advanced Simulation Settings.
Loan Repayment Simulator Advanced Settings VIN Foundation Loan Repayment Simulator, Advanced Settings

After the interest and repayment pause

VIN Foundation receives a lot of questions from veterinarians and veterinary students about how income, tax filing status, and family size affects your student loan repayment strategy.  During this tax-filing season and before the federal student loan pandemic forbearance benefit ends May 2, 2022, do a review of your student loans.  Start with an upload of your student aid data file into the VIN Foundation My Student Loans tool.
Check to see what your monthly student loan payment was before the pandemic forbearance benefit started.  Make sure your student loan contact information is up to date. Add your current name, email, and address in your loan servicer account and in the portal.  If your taxable income has decreased or stayed the same over this past year, or if your family size has increased, then run a student loan repayment simulation.  You may learn whether or not you should provide your updated income documentation to receive a lower monthly student loan payment this May.  
Use this valuable student loan repayment pause and interest-free period to build a sound repayment strategy going forward.

We’re here to help!

Happy budgeting this spring, summer, and fall. An ounce of planning is worth a pound of interest saved in repayment. Please feel free to reach out with any questions: VIN Foundation is here to help with understanding your veterinary school borrowing and repayment options now or in the future!

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