How to calculate the IBR tax consequences Forum

[lacrossebrother]

It's crazy to think about how much marginal changes in the top tax bracket will effect us. 3% change on a $300k forgiveness is $9,000 of straight spending money.

Vote GOP 2032 & 36, yall.

[Kronk]

someone with some time really needs to look up this no capitalization rule.
it was my understanding that if your principal is $150k, the make annual interest you could pay at any year, no matter the growth of the debt, would be 150k*interest rate. So at the pretty normal 6.7% average, you're looking at $10,050/year * 20 years = $351,000. Assuming the marginal tax rate is 35%, you're then looking at a total repayment of $122,850...which is obviously less than your principal.

I have been on PAYE for a year and this is how it works. I pay the interest for $250k of loans despite the fact my loans have ballooned upwards.

Despite being the most prudent financial move, does this nonetheless have any adverse effects on your MIND?

It did at first. It doesn't now. I think I am comforted by the fact that the federal government fucking me over would also fuck over an enormous amount of educated people, which makes me think it's unlikely to happen. The government only likes to horribly fuck over uneducated types.

I am pretty confident that this is the best way to repay my loans so I am making the smart financial moves that I know how to make to pay as little of them as possible. If something changes in the future I will adjust, but that's the plan for now and I am comfortable with it.

[jakim]

What would your strategy be if you had $600,000 in student loan debt at average 7% interest?

[Johann]

What would your strategy be if you had $600,000 in student loan debt at average 7% interest?

paye or repaye no brainer. [id probably try to find a government job. maybe biglaw for 10 years and then teacher for 10. retire.]
edit - evrything in bracket was facetious because thats a lot of debt.

[Kronk]

What would your strategy be if you had $600,000 in student loan debt at average 7% interest?

obvious PAYE situation and your tax bill is gonna fuck you in the ass so invest wisely over the next 20yrs.

[lacrossebrother]

hopefully youre a surgeon?

[jakim]

I'm a dentist. I got fucked. I was pretty ignorant about student loans and had some bumps throughout my education. Anyhow, I got out two years ago with over 500k and 2 years later its up to 600K, I don't know how that happened, my interest average 7-8%. When I got out of school i decided IBR paying as little as possible and investing and saving up for the taxes was my best bet. I'm having second thoughts though. At year 25 I'm thinking my amount forgiven would probably balloon out to 1mil or more if i pay as little as possible, then I'd have to have about 300K saved up at least to cover the tax, and I'd have paid over 500k along the way. If I average around 150-200k AGI a year. Am I wrong? Is it better to try and pay as little as possible or to pay more and try and keep my loans from ballooning to a certain amount?
Insolvency- If I have 500k saved up and am forgiven 1mil, then would I be taxed on 500K?

[twenty]

If you're on the PAYE for life track, definitely store up for year 25, and pay as little on your loans as you can. Hope that the tax bomb goes away (and it might, seeing as there are a lot of people on PAYE/IBR in front of you), try and limit your AGI as much as possible (if you're a business owner, this is substantially easier), and good luck.

[Johann]

look into REPAYE also as the fed gov pays for half the interest that does not get paid every month which slows the rate your loan balance grows dramatically.

[lacrossebrother]

1. Pretty sure irs has payment plans. You don't technically *need* to save for the tax bomb and that could work against you.
2. I'm curious if anyone can just explain how partnership --whether in a law firm or dental group--is regarded for solvency purposes.
3. Similarly, if you are a business owner, could you fuck with the capital structure of your business near the time of debt cancellation?

[Johann]

1. Pretty sure irs has payment plans. You don't technically *need* to save for the tax bomb and that could work against you.
2. I'm curious if anyone can just explain how partnership --whether in a law firm or dental group--is regarded for solvency purposes.
3. Similarly, if you are a business owner, could you fuck with the capital structure of your business near the time of debt cancellation?

partnerships wont work easily. youd have to take some big risks there. trusts will definitely work. the tax bomb will probably be legislated away, but tune in in 22 years if not to watch.