Why do people think IBR is only for public interest? Forum

[predent/prelaw]

Why do people think grad plus loans IBR only counts for PI and Gov?

[Stanford4Me]

I don't think people think it is only for public intrest. It's just that the most beneficial terms (forgiveness after 10 years) require public interest/government work, and people tend to focus on that.

[powerlawyer06]

I don't think people think it is only for public intrest. It's just that the most beneficial terms (forgiveness after 10 years) require public interest/government work, and people tend to focus on that.

IBR: Income Based Repayment

What you are talking about is PSLF or Public Service Loan Forgiveness. Technically they are seperate programs even though they are used in conjunction with each other.

http://www.ibrinfo.org

[LeDique]

And on non-public interest IBR, the forgiveness is taxed.

[bk1]

Because if you are doing 25 year IBR you could have probably just paid your loans off normally.

[aliarrow]

Because if you are doing 25 year IBR you could have probably just paid your loans off normally.

Not really...
$150,000 loan
income = $60,000
net pay (assume state w/ no income tax) = $46,000

25 year repayment (normal, pay off the loan) = $1,100/month = $13,200 per year = 28.7% of your take home pay.

25 year IBR = $550/month = $6,600/year = 14.34% of take home pay

[bk1]

Because if you are doing 25 year IBR you could have probably just paid your loans off normally.

Not really...
$150,000 loan
income = $60,000

25 year repayment (normal, pay off the loan) = $1,100/month

25 year IBR = $550/month

Hmm. I retract my previous statement then and offer how I personally feel about it:

Fuck if I'm going to be paying back my law school loans until the 2030's.

[Stanford4Me]

I, personally, also don't like the idea of going incurring a lot of debt and relying heavily on the government to pay it off.

[aliarrow]

Because if you are doing 25 year IBR you could have probably just paid your loans off normally.

Not really...
$150,000 loan
income = $60,000

25 year repayment (normal, pay off the loan) = $1,100/month

25 year IBR = $550/month

Hmm. I retract my previous statement then and offer how I personally feel about it:

Fuck if I'm going to be paying back my law school loans until the 2030's, Only to be hit with a massive tax bomb when 2030 comes

I did the math, the tax bombs really are awful.

[tipler4213]

Do social workers qualify for IBR?

My (uninformed) finance is going to get her MSW and do social work/counseling--worried about the Ivy League debt she is going to have to not make any money. In conjunction with my law school debt, my future seems bleak...

[Stanford4Me]

Hmm. I retract my previous statement then and offer how I personally feel about it:

Fuck if I'm going to be paying back my law school loans until the 2030's, Only to be hit with a massive tax bomb when 2030 comes

I did the math, the tax bombs really are awful.

Mind providing a little insight on this tax bomb? Thought I don't plan on doing (or even qualifying) for IBR, I'm curious.

[bk1]

Do social workers qualify for IBR?

My (uninformed) finance is going to get her MSW and do social work/counseling--worried about the Ivy League debt she is going to have to not make any money. In conjunction with my law school debt, my future seems bleak...

Depends on the kind of loans she took, the amount of loans she took, and the amount of money she makes. As mentioned above:

http://www.ibrinfo.org/

[aliarrow]

Mind providing a little insight on this tax bomb? Thought I don't plan on doing (or even qualifying) for IBR, I'm curious.

If you want to see the math heres a calculator I made (use the copy of the master copy - yeah this is an authorized alt, I don't care if you guys know, I just needed a different name because of adcomms and my apps, meh, I doubt the adcomms will look around this much to re-tag my identify)
http://www.top-law-schools.com/forums/v ... 5&t=150168

Basically - for private IBR you have to pay income tax on whats forgiven, and the amount forgiven ends up being enormous in many cases since its very likely the payments won't even cover interest if you make less than six figures, so the principle doesn't go down, it just compounds up for 25 years.

[YaSvoboden]

Hmm. I retract my previous statement then and offer how I personally feel about it:

Fuck if I'm going to be paying back my law school loans until the 2030's, Only to be hit with a massive tax bomb when 2030 comes

I did the math, the tax bombs really are awful.

Mind providing a little insight on this tax bomb? Thought I don't plan on doing (or even qualifying) for IBR, I'm curious.

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.

[Stanford4Me]

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.

That's crazy.

[aliarrow]

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.

That's crazy.

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.

That said,
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)

[Flanker1067]

While I appreciate the analysis, it is completely ridiculous to calculate the payments that you will make in 25 years and assume a 60K per year income.

[aliarrow]

While I appreciate the analysis, it is completely ridiculous to calculate the payments that you will make in 25 years and assume a 60K per year income.

Well 60k is generous. Its safer to assume a $40k starting income, and over the course of 25 years averaging $60k if lucky.

[bigben]

Because if you are doing 25 year IBR you could have probably just paid your loans off normally.

Not really...
$150,000 loan
income = $60,000
net pay (assume state w/ no income tax) = $46,000

25 year repayment (normal, pay off the loan) = $1,100/month = $13,200 per year = 28.7% of your take home pay.

25 year IBR = $550/month = $6,600/year = 14.34% of take home pay

What kind of scenario involves making the same salary for 25 years straight? You are going to be ruined by inflation.

[aliarrow]

Yes, the salary will grow. But you guys are nitpicking over the wrong things, it still isn't going to grow at >7.9% to make up for the interest.

Inflation only runs 1-4%

[Stanford4Me]

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.

That's crazy.

No, that's VERY mild and generous.

I was speaking in a vacuum. Obviously I understand the savings are much greater than the tax implications. That doesn't change the fact that I think it's crazy to pay that much in taxes in one year with such a low income. I imagine they have some alternative way of fulfilling your tax liability. If not, I hope the people who go into this program understand they need to set money aside to cover the liability.

[aliarrow]

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.

That's crazy.

No, that's VERY mild and generous.

I was speaking in a vacuum. Obviously I understand the savings are much greater than the tax implications. That doesn't change the fact that I think it's crazy to pay that much in taxes in one year with such a low income. I imagine they have some alternative way of fulfilling your tax liability. If not, I hope the people who go into this program understand they need to set money aside to cover the liability.

Yeah I know, I wasn't speaking directly to you, just elaborating that Sv's analysis was a generous one.

IRS does have payment plans, it just kinda sucks to pay debt for 25 years on one payment plan to go to another one. The good news is that tax debt (which it will be at that point, no longer student loan debt) is easier to discharge in bankruptcy.

[ArchRoark]

Because if you are doing 25 year IBR you could have probably just paid your loans off normally.

Not really...
$150,000 loan
income = $60,000
net pay (assume state w/ no income tax) = $46,000

25 year repayment (normal, pay off the loan) = $1,100/month = $13,200 per year = 28.7% of your take home pay.

25 year IBR = $550/month = $6,600/year = 14.34% of take home pay

One thing to take into account is that after the 25 year IBR loan forgiveness the amount forgiven is treated as taxable income.

[bigben]

Yikes, this is all pretty awful. I can't imagine any 25 year loan forgiveness scenario comparing favorably to non-law-school options when you do all the math. Yet sadly the 25 year forgiveness will be the best scenario for many law grads.

[geoduck]

To the people doing the math:

Please learn how income tax brackets work. If you know how they work, please stop simplifying to flat rates. It's extremely inaccurate and helps further the completely false idea that, for example, people in the 25% tax bracket pay the government 25% of all of their income.