If you're a healthcare professional on an Income-Driven Repayment (IDR) plan, you could save thousands each year with a few simple strategies. Here’s how to lower your monthly payments with ease.
How Income-Driven Repayment Plans Work
IDR plans, specifically here PAYE, calculate your monthly payment based on 10% of your discretionary income. Discretionary income is determined by taking your Adjusted Gross Income (AGI) and subtracting 150% of your local poverty level for your household size.
Translation: The lower your AGI, the lower your monthly student loan payment.
If you want to save more every month, the key is to keep your AGI as low as possible, if you are going for loan forgiveness.
3 Smart Strategies to Lower Your AGI (and IDR Payments)
1. Contribute to Pre-Tax Retirement Accounts Instead of Roth/After-Tax
One of the easiest and most impactful ways to lower your AGI is by putting money into pre-tax retirement accounts such as:
Traditional 401(k) or 403(b) plans
Traditional IRAs
Sep IRA, Solo 401(k), etc.

Example: If you earn $100,000 and contribute $20,000 to your traditional/pre-tax 403(b), your AGI is reduced to $80,000. This reduction directly impacts your student loan payment.
Without the pre-tax contribution (e.g., if you contributed to a Roth account), your IDR payment might be around $638/month. But with the pre-tax contribution, your payment could drop to $471/month—saving you $167 a month or $2,004 a year!
Quick Tip: While Roth accounts have great benefits (like tax-free growth), pre-tax contributions are usually the better option if you’re on an IDR plan. The immediate savings should not be overlooked.
2. Optimize Your Taxable Investment Account
If you have taxable investments, meaning outside a tax-sheltered account (IRA etc.), the income they generate (dividends, capital gains, etc.) will increase your AGI. Here’s how to manage it:
Use Tax-Efficient Funds: Choose funds with minimal capital gains and dividend distributions to avoid unnecessary taxable income.
Be Strategic When Selling Investments: Select tax lots with the highest cost basis to minimize taxable gains.
Defer Income When Possible: If you don’t need the money now, avoid selling investments or taking distributions from taxable accounts.

Advanced Tip: When selling investments, manually choose specific tax lots to minimize your gain rather than using the default "first-in, first-out" (FIFO) method. It’s a small step that can save you money in the long run.
3. Consider Your Filing Status if Married
For married borrowers, your tax filing status can significantly affect your AGI and IDR payments. Filing as Married Filing Separately (MFS) can sometimes help by excluding your spouse’s income from the IDR calculation.

Example: If you and your spouse both have high incomes, filing jointly may significantly increase your AGI and, therefore, your student loan payments. Filing separately can keep your payment lower.
Caution: Filing separately might result in higher taxes or reduced deductions, so it’s important to weigh the trade-offs. I can help you evaluate if this makes sense for your situation.
Final Thought: Plan Proactively
By focusing on strategies like contributing to pre-tax accounts, optimizing taxable investments, and considering your filing status, you can significantly reduce your student loan payments.
If you’re ready to take control of your student loan payments and overall financial plan, I’m here to help. Let’s create a strategy tailored to your needs as a healthcare professional.
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