aliarrow wrote: Stanford4Me wrote:
Well to be honest that kinda asks you to project exactly what tax law will be in 25 years. But, forgiveness of debt is income, so you are taxed on every dollar forgiven. Say your payments only covered interest that whole time with IBR (I haven't looked into IBR, but that actually seems generous with those payment amounts.) So you are forgiven of 150,000 and have to report that as income. Who the hell knows what the tax brackets will be, I suspect they will go up a lot. But let's say you make 80k that year and therefore are taxed on 230,000 at a generously low 30%. You owe 69,000 in tax on your 80,000 in income.
Obviously there are a lot of assumptions in there, but it doesn't look pretty for that year.
No, that's VERY mild and generous.
Say you take out $200,000 in loans and have a $60,000 income
Like I said, you pay $550/month, or $6,600/year.
Well 7.9% on $200,000 is $15,800/year.
So that means your loan balance will go up
$9,200 after the first year.
So now you have to pay interest on $209,200, while still only paying $6,600/year.
Do this for 25 years and the balance ends up around $373,000.00
We'll just put it at a straight 28% tax bracket for simplicity.
28% of $373,000.00+$60,0000 = $121,240.00 in taxes on $60,000 income...
And this is coming from someone who isn't debt averse and doesn't mind paying sticker...
Its just what the math says.
I still think sticker is ok, you just CANT go into the private sector if you don't hit biglaw (or at least the fabled upper midlaw). The good news is that many public jobs qualify for public loan forgiveness (teaching, peace corps, military, PI, any govt agency, etc)
Why can you not pay the interest? The government site only says this about it so I am assuming you can pay the interest?
Q36 Q&A #2 stated that the government may pay some of the interest on my subsidized loans for the first
three years. How does this work?
A36 Under the IBR Plan, your monthly payment amount may not cover all of the interest that accrues on
your loans each month. (This is called negative amortization.) If this happens, the government will pay
the remaining unpaid accrued interest that is due each month on your subsidized loans (including the
subsidized portion of a Consolidation Loan) for up to three consecutive years from the date you begin
repaying your loans under IBR. For example, if the monthly interest that accrues on your subsidized
loans is $40, but your monthly IBR payment only covers $25 of this amount, the government will pay
the remaining $15.You are responsible for paying all of the interest that accrues on your unsubsidized loans, as well as all
of the interest that accrues on your subsidized loans after the end of the 3-year interest subsidy period.
Interest that is not covered by your monthly payment will continue to accumulate and will be capitalized
(added to your loan principal balance) when you are determined to no longer have a “partial financial
hardship,” or if you leave the IBR Plan.
Also what is to stop you assuming you are not doing public interest from using the IBR for a few year starting at a job that pays shit in the beginning and turning it into something that makes a lot. Then switching over to regular 10 year plan?