Does anyone else find Income-Based Repayment to be too suspiciously generous?

[Guest]

For those of us in the humanities, the possibility of being on IBR for our $100,000+ in loans seems tremendously less hopeless when you take into account that they are willing to forgive all outstanding loan balances after 25 years (and even less for loans in 2015 or for those who work in public service jobs). This may suck for people who simply don't like being in debt, but for the rest of us this is phenomenal.

 

I have been calling this "soft" socialized education, but i wonder if I'm missing some big ugly fact behind this all.

 

Just my thoughts.

[Usmivka]

It's a biggy: you owe income tax on any forgiven debt unless you go into a public service job like teaching. That can be a giant chunk of change, and if your income is low enough to forgive the debt, you probably can't afford to pay your tax bill in this scenario (the times estimates $10000 due in taxes at the time of forgiveness for a $41000 debt).

Read more in this NY Times article.

Edited January 18, 2013 by Usmivka

[BerenErchamion]

It's a biggy: you owe income tax on any forgiven debt unless you go into a public service job like teaching. That can be a giant chunk of change, and if your income is low enough to forgive the debt, you probably can't afford to pay your tax bill in this scenario (the times estimates $10000 due in taxes at the time of forgiveness for a $41000 debt).

Read more in this NY Times article.

 

Yes, but...

 

...as long as you're not in a situation where you depend on your tax refund check to make ends meet, worst-case scenario is you lose your refund for ten years or so.

 

The IRS is very willing to work with you to come up with a workable payment plan if you can't pay what you owe right away, as long as you're not trying to conceal income and communicate with them.

 

Depending on what state you end up in, though, state taxes may be a different story.

[juilletmercredi]

Yeah, this isn't really a huge consideration - the income tax thing, I mean.  I'd much rather ow $10,000 than $41,000.

 

The biggest "catch" seems to be that you have to make all 300 payments on time (or 120 in the case of the public service forgivenness), and if you miss even one, you can be rendered ineligible for the IBR.