IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

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SuperCerealBrah
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Re: IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

Postby SuperCerealBrah » Mon Sep 17, 2012 3:10 pm

ChampagnePapi wrote:
sunynp wrote:Campos had a blog post awhile back discussing how George Washington was promoting IBR to students.
http://insidethelawschoolscam.blogspot. ... s.html?m=1

--LinkRemoved--

Note the comments on the interview scathing Herman for advocating IBR and the blog for publishing the interview.


One of the comments suggested including % of students on IBR or default in the rankings. Would this be a pretty good indicator of how many students get poor outcomes? Seems like something the schools should ask in the surveys (or are they already doing it?)


Yes, that should definitely be required. However, I just don't feel like we will ever get a truly accurate number for this.

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chup
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Re: IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

Postby chup » Mon Sep 17, 2012 3:19 pm

jurisprudence2012 wrote:
WhiteyCakes wrote:This thread has been successfully hijacked

by reality. your welcome. now go back to putting the cotton in your ears son. Thinking for yourself is bad for copy&paste drones.

You're done here.

Image

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cinephile
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Re: IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

Postby cinephile » Mon Sep 17, 2012 6:12 pm

Gorki wrote:
cinephile wrote:We had this individual financial advising thing recently with our financial aid office and they really did try to sell me on IBR. It's pretty terrible.


I can not believe schools are trying to sell students on IBR. Haven't these soulless institutions taken enough from their life source?


It was kind of funny. We looked at ways of managing my finances so I could pay off my loans as quickly as possible and he's like, instead of living like a student for the next 10 years, just do IBR. And he's like, most of your classmates are anyway.

timbs4339
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Re: IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

Postby timbs4339 » Mon Sep 17, 2012 6:55 pm

Another neat little factoid about IBR: leave the program and any accrued, unpaid interest capitalizes onto the principal balance. I think you might be able to figure out how at the debt levels many law students carry they will almost never be able to leave even if they work themselves into a 75k job after 5 or 6 years. You need to pay your interest while on the program which can be almost 20k per year at current tuition levels.

ksllaw
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Re: IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

Postby ksllaw » Tue Sep 18, 2012 1:50 am

Tom Joad wrote:You guys understand the IBR tax bombs as well, right?

That is probably the worst part.



What did you mean by this?

Out of curiosity, how does loan repayment factor into taxes and possible deductions? Are you saying that if you go with IBR that your loan payments won't be tax deductible anymoe?

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KevinP
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Re: IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

Postby KevinP » Tue Sep 18, 2012 2:00 am

ksllaw wrote:
Tom Joad wrote:You guys understand the IBR tax bombs as well, right?

That is probably the worst part.



What did you mean by this?


Assuming the govt. doesn't scrape the program, you pay into IBR for 25 (20?) years and then the govt. forgives your loan amount (original amount + interest). However, the amount that the government forgives will be counted as if it was income you earned and subsequently taxed. Imagine being taxed as if you earned 500k in a year. That, my friend, is a tax bomb.

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Tanicius
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Re: IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

Postby Tanicius » Tue Sep 18, 2012 3:38 am

Assuming the govt. doesn't scrape the program, you pay into IBR for 25 (20?) years and then the govt. forgives your loan amount (original amount + interest). However, the amount that the government forgives will be counted as if it was income you earned and subsequently taxed. Imagine being taxed as if you earned 500k in a year. That, my friend, is a tax bomb.


How does that even make sense? If they can't pay it off, how are they expected to pay it back in a different form, as a tax?

More importantly, does apply to the 10-year public interest forgiveness plan?

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cinephile
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Re: IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

Postby cinephile » Tue Sep 18, 2012 10:12 am

Tanicius wrote:
Assuming the govt. doesn't scrape the program, you pay into IBR for 25 (20?) years and then the govt. forgives your loan amount (original amount + interest). However, the amount that the government forgives will be counted as if it was income you earned and subsequently taxed. Imagine being taxed as if you earned 500k in a year. That, my friend, is a tax bomb.


How does that even make sense? If they can't pay it off, how are they expected to pay it back in a different form, as a tax?

More importantly, does apply to the 10-year public interest forgiveness plan?


No, thankfully. This is the only situation under which IBR makes sense. And if IBR gets scraped, hopefully you'll have your school's LRAP to fall back on.

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sunynp
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Re: IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

Postby sunynp » Tue Sep 18, 2012 10:19 am

Tanicius wrote:
Assuming the govt. doesn't scrape the program, you pay into IBR for 25 (20?) years and then the govt. forgives your loan amount (original amount + interest). However, the amount that the government forgives will be counted as if it was income you earned and subsequently taxed. Imagine being taxed as if you earned 500k in a year. That, my friend, is a tax bomb.


How does that even make sense? If they can't pay it off, how are they expected to pay it back in a different form, as a tax?

More importantly, does apply to the 10-year public interest forgiveness plan?


It makes sense because no one is happy with letting student loan debt be forgiven just because individuals can't pay it. By pushing the day of reckoning out 25 years, it will be someone else's problem to deal with when it all starts coming due.

The idea with the tax is that the IRS will go into another payment plan with you I guess. So you are basically in debt forever.

Note I haven't run the numbers. I have read posts here where people say that if you stick to an IBR payment, you will eventually pay off the debt (and maybe even pay more than if you had done a regular payment) if you have a decent income. I suppose that varies widely depending on individual circumstances.

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somewhatwayward
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Re: IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

Postby somewhatwayward » Tue Sep 18, 2012 10:36 am

sunynp wrote:My personal opinion is that IBR is the method of last resort to keep people from killing themselves because of their insurmountable debt. I think planning to use IBR to pay off your loans is a huge mistake. I think people should drop out of school if it looks like they won't get the job they need to repay the debt that they are incurring to go to law school. IBR wasn't designed to be a 20 or 25 year repayment plan, but that is what seems to be happening in some cases.

If a law grad with massive debt gets into a bad situation, loses a job or something unexpected happens, then IBR is a good backstop. The purpose was to give people some relief because they have no other recourse. I think it succeeds in that, but it would be better to allow people to walk away from their debt in many more instances than are currently allowed.

I think the availability of IBR may make it almost impossible to get changes to the bankruptcy code to allow students to discharge debt.


I don't know I agree with this. I think it introduces even less accountability into the system. Maybe for students who already have the debt, but I think the best thing would be to make the schools get some skin in the game.....eg, school is not eligible to receive federal financial aid unless a certain (high) percentage of its graduates are making payments on their loans. This puts pressure on the schools to lower tuition and make class sizes smaller.

The Duck
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Re: IBR (Income-Based Repayment) - A Boon or Bane?...A Big Trap?

Postby The Duck » Tue Sep 18, 2012 10:40 am

KevinP wrote:
ksllaw wrote:
Tom Joad wrote:You guys understand the IBR tax bombs as well, right?

That is probably the worst part.



What did you mean by this?


Assuming the govt. doesn't scrape the program, you pay into IBR for 25 (20?) years and then the govt. forgives your loan amount (original amount + interest). However, the amount that the government forgives will be counted as if it was income you earned and subsequently taxed. Imagine being taxed as if you earned 500k in a year. That, my friend, is a tax bomb.


I agree this is a tax bomb...however this overstates it. (And it is commonly overstated.)

You're only taxed on forgiven debt to the extent that it exceeds insolvency. (Total of liabilities minus FMV of assets.) Also, the capitalized interest is not taxable as it would be deductible if you paid it.

http://www.irs.gov/pub/irs-pdf/p4681.pdf

So, $200K principal loan, $50K in assets, $500K forgiven...you'd be taxed on $50K.

$200K principal, $250K in assets, $500K forgiven...you'd be taxed on $200K.




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