In comparison to private loans, federal loans have the added benefit of having different repayment plan options. If you are on an income-driven repayment plan, the payments are based on your discretionary income. Naturally, if something changes financially, this could affect how much you are paying every month. In this particular case that we will be looking at, is it possible for your payments to go up if you are receiving an inheritance or a large gift?
How Your Payments Are Calculated
The government determines what your payments will be by considering your current state of residence, family size, and your most recent tax return according to The Student Loan Sherpa. The loan servicer you are with will then use this information to determine your discretionary income, and then your monthly payment. Student Loan Hero has a nifty calculator that allows you to see part of this process in action and gives you an idea of what you will pay after the calculator crunches the numbers.
Pay Attention to Your Adjusted Gross Income (AGI)
Basically, if your adjusted gross income goes up, so will your monthly payments. In regards to the question being postulated, can accepting an inheritance or a large gift affect your AGI? That all depends on if it will be treated as income. The best place to seek advice will be with your own accountant who prepares your taxes who can tell you if this will affect your AGI.
As detailed on the IRS’s website, taxes on inheritance are typically not applied to the beneficiary but the person giving the money—the same goes for gifts. As noted by the Student Loan Sherpa, you may still be subject to state-level taxes. However, these will not affect your student loan payments. To learn more about how the IRS handles inheritance and gift taxes, visit their page here.
It’s All About Your Most Recent Tax Return
Pay close attention to your AGI to determine if you will end up owing more each month. If you do receive an inheritance, it will most likely have no effect on your monthly payment. But to be sure, make sure you seek advice from a financial professional or from the accountant that prepares your taxes to know for sure. To see further how the process works in calculating your payments, you can use the Department of Education’s Repayment Estimator.