How to lower your student loan payments

March 7, 2023 | Robbie Morris

Robbie Morris, CSLP®
Robbie Morris, CSLP®
Hey! I'm Robbie, the founder of Roots Financial Planning, a fee-only, fiduciary advisor located in San Antonio, TX working virtually with dentists across the United States. When I'm not helping dentists live their best life, you can find me making pizza, swimming, or skiing.

Paying as little as possible on your student loans is a strategy used by dentists pursing forgiveness through Public Service Loan Forgiveness (PSLF) or taxable forgiveness. The goal is to pay as little as possible each month and have a large balance forgiven at the end of the payment term.

In this post we will discuss some of the most reliable ways to lower your student loan payment and achieve your forgiveness goal.

Use an IDR plan

Using an Income Driven Repayment (IDR) plan is generally the foundation for pursing any type of forgiveness. Generally, using an IDR plan will produce the lowest possible payment when compared to the conventional repayment plans like Standard and Extended. The reason for this is because IDR plans base your monthly payment on your income and family size. Your income and family size need to be recertified every year in order to calculate your payment for the following 12 months.

The most popular IDR plans, Pay As You Earn (PAYE) and Saving on a Valuable Education (SAVE), base payments on 10% of your discretionary income. Discretionary income is your Adjusted Gross Income (AGI) minus 150% of the poverty guideline for your state and family size for PAYE. For SAVE, AGI is reduced by 225% of the poverty guideline.

The poverty guideline is the same for the 48 contiguous states and slightly different for Hawaii and Alaska. This is something you cannot really control. What you can control to some degree is your AGI and family size.

Recertify your IDR plan early if your income has decreased.

If you find yourself in a situation in which your income has decreased substantially, now would be a good time to recertify your income early. By doing so you can immediately lower your monthly payment. This new monthly payment will remain until your original recertification date comes around again. Recertifying outside of your normal recertification date does not provide a new 12-month period of payments.

Recertify your IDR plan early if you gained a dependent.

Similar to recertifying when your income decreases, recertifying early has a similar effect when you add a member to your household. This applies to an unborn/newborn, adoption, or even an elderly parent. When your family size increases, your poverty guideline increases, which means your discretionary income will decrease.

To recertify early, head to and click on the “Recalculate My Monthly Payment” option.

Lower your Adjusted Gross Income (AGI)

Your AGI comes from your Form 1040 individual income tax return. For 2022, it is on line 11. AGI is your gross income minus any above-the-line deductions. Let’s take a look at a few ways that your AGI can be reduced.

Contribute to pre-tax retirement accounts

When you contribute to a pre-tax retirement account, the contribution amount is not included in your income for the year. This also means it is excluded from AGI. Pre-tax retirement accounts include 401(k), 403(b), 457(b), Traditional IRA, SEP IRA, and SIMPLE IRAs. All of these account types also have after-tax or Roth options, so you must be sure to choose pre-tax if you intend to lower your AGI.

Contribute to a Health Savings Account (HSA)

A HSA is another type of pre-tax investment account. A HSA is intended to be used for qualifying medical expenses. From a tax perspective, it functions similarly to pre-tax retirement accounts. As long as you are enrolled in a High Deductible Health Plan (HDHP) you may make a contribution. This will allow for another deduction that will lower your AGI.

Student Loan Interest deduction

Since you are likely paying interest on your student loans this deduction might apply. This is a deduction for any student loan interest paid during the year. Currently, you can deduct up to $2,500 of interest paid. Unfortunately, there is a relatively low phase out for this deduction. This means if you earn more than the phase out range, you cannot claim the deduction. Generally, dentists are high earners so this deduction is often lost.

For 2022, if you are single and earn more than $85,000 the deduction is phased out. If you are Married Filing Jointly (MFJ) and earn more than $175,000 the deduction is phased out. If you are Married Filing Separately (MFS) you are not allowed to claim this deduction. MFS is a common filing status for dentists pursuing forgiveness so it is unfortunate that this deduction is lost due to that.

File taxes Married Filing Separately (MFS)

MFS can be a way to lower AGI; however, I think it deserves its own section entirely. MFS tends to be a common supporting piece for married couples pursuing student loan forgiveness.

The key point of MFS is to separate your income as a dentist from any income your spouse has. This can dramatically lower your IDR payments depending on your unique household income situation.

Separation of income does not work the same in every state though. There are separate property states and community property states. All states are separate property except for the following nine: Washington, Idaho, California, Nevada, Arizona, New Mexico, Texas, Louisiana, and Wisconsin.

Separate Property example. You earn $200,000 as a dentist and your spouse earns $100,000. A MFS return would show $200,000 on your return and $100,000 on your spouse’s return.

Community Property example. You earn $200,000 as a dentist and your spouse earns $100,000. A MFS return would show $150,000 on your return and $150,000 on your spouse’s return.

As seen in this example, both types of states provided a lower income for the dentist spouse than if they were to file jointly. There are many planning opportunities to explore depending on how income is split in the household.

Move to a different state

This might sound a little drastic, but perhaps you were thinking of moving anyway! Relocation is likely on your mind when searching for your first associate job out of dental school. This ties directly back to the differences between MFS in a separate property state vs a community property state.

Imagine that you’re the dentist paying off student loans and you have a much larger income than your spouse. In this scenario, MFS would be more beneficial for you in a community property state.

Example: you are the dentist earning $250,000 and your spouse earns $50,000 as a teacher. In a separate property state, you would only be able to exclude your spouses $50,000 of income. In a community property state, you would be able to exclude $100,000. ($250,000 + $50,000)/2 = $150,000 shown on each spouse’s tax return.

Now, imagine that you are the dentist paying off your student loans and you also have a high earning spouse who does not have student loans. MFS would be more beneficial for you in a separate property state.

Example: you are the dentist earning $200,000 and your spouse earns $400,000 as a physician. Your spouse has already achieved loan forgiveness through PSLF. In a community property state, your income would actually appear to be larger. $300,000 would show on each of your returns. In a separate property state, you would only show your $200,000 of income.

The second example here is more to show the proof of concept. Generally, you can use alternative documentation of income to avoid the community property summation of income on the tax return. Alternative documentation will usually be your pay stubs.

IDR plans make student loan payments more affordable. If you are pursuing forgiveness, there are even more levers you can pull to reduce your payments further. These strategies can help you pay as little as possible when you go down that path.