IBR and Loan Forgiveness

[drew0010]

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Hello. this is for those students who just graduated. I just read about this and am very intersted. I most likely will not be working in public service.

This faq got me looking more into it.

Do I have to work in a public service job to use income-based repayment?
Income-based repayment is available even if you aren't working in a public service job. If you don't work in a public service job, the remaining balance is forgiven after 25 years in repayment (excluding certain deferment and forbearance periods). If you work in a public service job, the forgiveness occurs after 10 years instead of 25.

So I did a quick calculation with their calculations tool owing 240k for pharmacy school and making 80k a year. I did 82k for subsidized loans at 6.8% interest, and the rest upsubidized with 7.9% interest. These would be government loans as private does not count.

The IBR monthly came came at around 800 a month. Anyone have any knowledge in this? It feels too good to be true that I would pay 800 a month for 25 years equaling to my original loan (240k). Basically they forgive the interest accrued. Am I understanding this correctly? I read on a news article that that 25 year rule is changing to 20 years this year.

It is definitely confusing for me. Hoping there are others who are going through the process and about to start it.

Thanks ahead of time.

 

[confettiflyer]

Hello. this is for those students who just graduated. I just read about this and am very intersted. I most likely will not be working in public service.

This faq got me looking more into it.

Do I have to work in a public service job to use income-based repayment?
Income-based repayment is available even if you aren't working in a public service job. If you don't work in a public service job, the remaining balance is forgiven after 25 years in repayment (excluding certain deferment and forbearance periods). If you work in a public service job, the forgiveness occurs after 10 years instead of 25.

So I did a quick calculation with their calculations tool owing 240k for pharmacy school and making 80k a year. I did 82k for subsidized loans at 6.8% interest, and the rest upsubidized with 7.9% interest. These would be government loans as private does not count.

The IBR monthly came came at around 800 a month. Anyone have any knowledge in this? It feels too good to be true that I would pay 800 a month for 25 years equaling to my original loan (240k). Basically they forgive the interest accrued. Am I understanding this correctly? I read on a news article that that 25 year rule is changing to 20 years this year.

It is definitely confusing for me. Hoping there are others who are going through the process and about to start it.

Thanks ahead of time.

most hospitals qualify under the "public service" heading, why not go there? salaries are the same +/- 10%

 

[mustang sally]

I am signing up for IBR, too. I never thought the monthly payments ended up equaling the original amount of the loan over the total number of years with accrued interest forgiven, though. I'm pretty sure the payment that they calculate for you is based on your total income and family size, with the payment amount adjusting accordingly every time you fill out your annual paperwork and the total balance being forgiven after 20 years (or 10 years for public service forgiveness). I also remember reading or hearing somewhere that the government will pay the interest on your subsidized loans for the first three years, but the interest on your unsubsidized loans continues to accumulate.

 

[type b pharmD]

A couple of tips:

1. If you're taking out loans at the moment, Obama's executive order should cover you, therefore making it a 20 year repayment.

2. Public service for nonprofits = 10 year tax free forgiveness

3. All other employment = 20 year taxable forgiveness.

4. When your IBR finishes on 240k, at an $800-1000/month payment, you are looking at around $300-350k forgiveness. If you're not working for a non profit, you will be taxed on this forgiveness. HOWEVER , it is not all treated as income (see below)

5. During the year of your forgiveness, you will file IRS form 982-- Reduction of tax attributes due to discharge of indebtedness. This makes it so you only owe taxes on debts forgiven up to the level of your assets.

Ie: If you had 200k forgiven, and had 80k in assets, you will only be taxed on 80k of the forgiveness. It behooves the IBR participant to minimize assets during the years leading up to forgiveness, in order to minimize tax owed on forgiveness.

Just keep these things in mind, and it will probably be substantially to your benefit to consult an independent tax accountant and lawyer who will have fiduciary responsibility to you, in order to get the best deal. Do NOT go to H&R block, as their corporate policies will probably prevent them from being able to do *everything* 😉 they can to lower your tax bills.


So yes, it is for all intents and purposes "too good to be true" .. But, it is true for now, and the smart saver and investor will come out significantly ahead of his or her peers, particularly for debts >200k.

Also check out finaid.org and use their calculator (for the 10%/20year option) to get an estimate for just how much you are saving versus a traditional payment plan.

Hope this helps!


Note: the reason you will ultimately end up being forgiven for more than the debt you originally took out is due to negative amortization. On a 250k debt, if you pay $900/month, you will actually never touch the loan principal. Your interest accrual will actually be around $1200/month or so, so those $900/month payments will basically mean your loan will be *growing* until it is forgiven, thus you will end up with more forgiveness than you originally took out, and in strict legal terms, you will never even begin to repay the loan balance before forgiveness kicks in. For example, in a situation where you have 300k in loans and end up only finding a part time job, making an IBR payment of $500/month (a situation chosen to emphasize just how beneficial IBR can be), your loan will grow to around 500k with the accrued interest by the time IBR forgiveness kicks in. When all is said and done in this situation , in financial terms you will have paid slightly under $120,000 in interest payments, and around $150,000 in unpaid interest will accrue to the loan balance, leaving your overall forgiveness at around $400-500k. In comparison with a traditional 10 year payback period, in which you pay the entirety of the loan -- in the IBR scenario, you will have just saved yourself approx $200,000. And depending on your asset allocation during the year of forgiveness, you'll probably be left with an additional $20,000-$50,000 hit from the IRS in forgiveness tax, which can be spread out over however long a period you want (contrary to popular belief, the IRS is willing to set up flexible payment plans on large amounts of owed tax). So STILL. even considering the forgiveness tax liability, you still end up ahead of traditional payment users by at least $100,000 in this situation. Obviously the numbers are different for each person, but this example demonstrates a case where IBR is truly a no brainer "win-win situation".

Its also worth mentioning, there is a cohort of people who believe IBR is going to be cancelled in the near future , leaving students to foot the large bills from their ballooned loans. Personally I am banking on this not happening. There is also a group that argues the opposite point, that student borrowers will end up being forgiven a signficant portion of their loans in the near future anyway, due to generalized economic and debt collapse. Personally, I am planning on betting between these two outcomes, and taking a highly conservative path toward tax and taxable asset minimization. I would reveal my actual financial plans, but I would likely be attacked by people on this board who feel that I am "abusing" the system. IMHO, It's up to each individual to look out for their own financial well being by playing the game and system as effectively as possible (and as selfishly as possible, after all that is capitalism is it not?)

 

[confettiflyer]

I would reveal my actual financial plans, but I would likely be attacked by people on this board who feel that I am "abusing" the system. IMHO, It's up to each individual to look out for their own financial well being by playing the game and system as effectively as possible (and as selfishly as possible, after all that is capitalism is it not?)

Been there done that, haha...post away. I intend to minimize the extent of my liabilities as much as possible given whatever laws are in effect. My previous argument on my IBR post was that this program will stay around simply because it's a different type of gov't program that doesn't need to seek funding on an annual basis.

 

[type b pharmD]

Been there done that, haha...post away. I intend to minimize the extent of my liabilities as much as possible given whatever laws are in effect. My previous argument on my IBR post was that this program will stay around simply because it's a different type of gov't program that doesn't need to seek funding on an annual basis.

Yeah, it is not high on the congressional radar (due mostly to the fact that it does not fall into a continually renewing appropriations process). But another thing to consider is that by the time these debts (ie forgiveness) come due on the fed's tab, a MASSIVE majority of the voters will be saddled with extreme student debt, and student debt will be a hot button issue in the sense that most everyone will care about it, and a large amount of voters (specifically: educated and (relatively) well off) will not support moves such as abolishing favorable student loan terms.

Obama's executive order play this last year was clearly an example of thinking ahead about voter priorities and buying that important young adult vote that he rode the last election on. I dont particularly support the guy's policies, but I'll be voting for him purely because of the fact that that order will end up saving me $30-50k over the life of my loan.

 

[confettiflyer]

Yeah, it is not high on the congressional radar (due mostly to the fact that it does not fall into a continually renewing appropriations process). But another thing to consider is that by the time these debts (ie forgiveness) come due on the fed's tab, a MASSIVE majority of the voters will be saddled with extreme student debt, and student debt will be a hot button issue in the sense that most everyone will care about it, and a large amount of voters (specifically: educated and (relatively) well off) will not support moves such as abolishing favorable student loan terms.

Obama's executive order play this last year was clearly an example of thinking ahead about voter priorities and buying that important young adult vote that he rode the last election on. I dont particularly support the guy's policies, but I'll be voting for him purely because of the fact that that order will end up saving me $30-50k over the life of my loan.

Good point. Never thought about it that way. Today's debt saddled hipsters will be tomorrow's voters!

 

[owlegrad]

Yeah, it is not high on the congressional radar (due mostly to the fact that it does not fall into a continually renewing appropriations process). But another thing to consider is that by the time these debts (ie forgiveness) come due on the fed's tab, a MASSIVE majority of the voters will be saddled with extreme student debt, and student debt will be a hot button issue in the sense that most everyone will care about it, and a large amount of voters (specifically: educated and (relatively) well off) will not support moves such as abolishing favorable student loan terms.

Obama's executive order play this last year was clearly an example of thinking ahead about voter priorities and buying that important young adult vote that he rode the last election on. I dont particularly support the guy's policies, but I'll be voting for him purely because of the fact that that order will end up saving me $30-50k over the life of my loan.

What percent of voters do you think have a college education? I highly doubt it is a "MASSIVE majority". Otherwise, I agree with your logic. 👍

 

[type b pharmD]

What percent of voters do you think have a college education? I highly doubt it is a "MASSIVE majority". Otherwise, I agree with your logic. 👍

Not a lot at the moment, but with the emphasis on job retraining with the recession, and the extremely increased availability of student loans, I suspect the percentage will go a lot higher within the next 20 years.

Other factors you have to consider are, people who dropped out and still have loans (ie more than just the number of degree holding citizens), the fact that many more people are going back to school at the moment, especially with for-profit scam colleges, a generalized push for higher education, push for retraining, people wanting to hide out in higher education to ride out the recession. I can't say for sure that degree holders are going to increase a lot, but I think it can be safely said that student debt holders by % of population is going to become a significant percentage of voters.

Also you have to consider that these voters with at least some education, are more likely to vote than the average uneducated poor person, and more likely to spend money on elections and generate publicity for or against congressional candidates than the average uneducated person.

 

[drew0010]

type b pharmD.

thank you! you cleared up a lot of things and brought a lot of good points up. I do assumed in 25 years that i'd own a home. so I don't see anyway around that unless I sold the hold a year before..But makes alot of sense. I wonder what will be taxed on if you have more assets that is owed..I would assumed a 450k home would be affordable to me then. Good things to think about. I will be saving your answer and bringing it up with fin aid when I start school.

I do hope this program stays around. Its in the best interest for the government to help students want to graduate and take own huge debt to replace all those retiring.
I understand

 

[type b pharmD]

type b pharmD.

thank you! you cleared up a lot of things and brought a lot of good points up. I do assumed in 25 years that i'd own a home. so I don't see anyway around that unless I sold the hold a year before..But makes alot of sense. I wonder what will be taxed on if you have more assets that is owed..I would assumed a 450k home would be affordable to me then. Good things to think about. I will be saving your answer and bringing it up with fin aid when I start school.

I do hope this program stays around. Its in the best interest for the government to help students want to graduate and take own huge debt to replace all those retiring.
I understand

1. A home is only an asset to the extent that you hold equity in it. For example, you own a 450k home, but only have 50-100k of equity, you only really have 50-100k of assets in that home. Taking out a refinance/ home equity line of credit could theoretically reduce your assets to zero, depending on where you put the money in the interim (this is where some people may take offense at straying into a gray legal area).

If you really do end up having more assets than what is owed, then you will owe tax on the entirety of the debt forgiveness as if it was income that year. The strategy I am proposing relies completely on minimization of assets.

On the other hand, you can eliminate tax debt in bankruptcy , UNLIKE student loans, and also the IRS is very flexible with payment plans, so converting what would otherwise be student debt into tax debt is usually net beneficial, if you run the financials appropriately for your situation

edit: there are many other ways to 'minimize' assets, but that should really be left up to a confidential conversation between you and your accountant and lawyer. Trust me on the idea that you want to talk to these people after you graduate but before you accumulate any significant wealth.

 

[drew0010]

Some good articles about Obamas executive order.

http://www.theatlantic.com/business...or-obamas-10-student-loan-payment-cap/247470/

how to calculate your 10 percent

http://www.theatlantic.com/business...or-obamas-10-student-loan-payment-cap/247470/

 

[drew0010]

1. A home is only an asset to the extent that you hold equity in it. For example, you own a 450k home, but only have 50-100k of equity, you only really have 50-100k of assets in that home. Taking out a refinance/ home equity line of credit could theoretically reduce your assets to zero, depending on where you put the money in the interim (this is where some people may take offense at straying into a gray legal area).

If you really do end up having more assets than what is owed, then you will owe tax on the entirety of the debt forgiveness as if it was income that year. The strategy I am proposing relies completely on minimization of assets.

On the other hand, you can eliminate tax debt in bankruptcy , UNLIKE student loans, and also the IRS is very flexible with payment plans, so converting what would otherwise be student debt into tax debt is usually net beneficial, if you run the financials appropriately for your situation

I like the way you think. Very smart. Definitely something I will look into! Thanks again for taking the time to write your post. It was extremely helpful and eye opening.

 

[confettiflyer]

What percent of voters do you think have a college education? I highly doubt it is a "MASSIVE majority". Otherwise, I agree with your logic. 👍

Funny I just read an article on this in the NY Times, I think we're at ~30% of the US population.

 

[civex]

Am I the only one who thinks this is wrong? When I took out my loans, I knew that I was entering into an agreement, within which I was to pay back the principle amount plus an agreed amount of interest. If you don't think pharmacy school is worth the investment; don't go, or improve your stats enough to attend a lower cost instate institution.

 

[type b pharmD]

Am I the only one who thinks this is wrong? When I took out my loans, I knew that I was entering into an agreement, within which I was to pay back the principle amount plus an agreed amount of interest. If you don't think pharmacy school is worth the investment; don't go, or improve your stats enough to attend a lower cost instate institution.

Would you not say that entering into an IBR payment plan would constitute forming a new (different) agreement about the terms of the loan?

When I took out my loans, I entered into an agreement to pay them back in full as well. However, I did this with the knowledge that a new agreement could be entered into upon repayment. The altered terms are provided for OUR benefit, by the federal government, in order to incentivize becoming highly educated.

I do hold to my commitments. The minute I enter repayment, I am going to make a firm, honest, and honorable agreement to pay 10% of my income for 20 years in exchange for the forgiveness, which is the 'market rate'' so to speak with IBR.

A contract is a contract is a contract. Take the best terms you can find. It might be argued that someone who chooses to accept worse terms/rates on a financial instrument is being dishonest to the market and to their own best interest.

All I am advocating is better distributed and more perfect 'market knowledge'. That is, to enhance the ability of a rational financial actor to choose what is in their best financial interest.

 

[civex]

I would agree that you are entering into a new contract, but I disagree that IBR was intended for "OUR benefit"( assuming you mean well compensated professionals or pharmacists.) My understanding is that IBR was created to allow average or below average income earners with large amounts of student debt to be able to survive; not allow people who make(or will make) 2-3x the national average salary to take on irresponsible amounts of student debt without having to fullfill their obligation. When you say

It might be argued that someone who chooses to accept worse terms/rates on a financial instrument is being dishonest to the market and to their own best interest

I think its backward. You are further inbalancing the market by attending the expensive, private schools which net the same ROI(the pharmd) as the cheaper instate schools. Dollar for dollar you are getting a lower return, which is basically the opposite of capitalism. 160k=private pharmd; 65k=instate pharmd. And finally, by using the system in this way you are taking away the consequenes of making poor economic choices, and in some instances rewarding poor choices.

 

[dxb8307]

I am a P1 and my tuition is 15k per year. I am hoping to be able to get out with under 100k and to me, that just sounds like an awful a lot of money. I can't imagine having 240k in loans for pharmacy school. IBR wouldn't help someone like me at all but in the next three years, God knows what might change. I started pharmacy school thinking that I will have $8,500 available in subsidized loans and as it turns out, subsidizing loans are now being phased out for graduate/professional students. Suddenly, pharm school got more expensive overnight.

 

[type b pharmD]

I would agree that you are entering into a new contract, but I disagree that IBR was intended for "OUR benefit"( assuming you mean well compensated professionals or pharmacists.) My understanding is that IBR was created to allow average or below average income earners with large amounts of student debt to be able to survive; not allow people who make(or will make) 2-3x the national average salary to take on irresponsible amounts of student debt without having to fullfill their obligation. When you say I think its backward. You are further inbalancing the market by attending the expensive, private schools which net the same ROI(the pharmd) as the cheaper instate schools. Dollar for dollar you are getting a lower return, which is basically the opposite of capitalism. 160k=private pharmd; 65k=instate pharmd. And finally, by using the system in this way you are taking away the consequenes of making poor economic choices, and in some instances rewarding poor choices.

Ah, my understanding was that it was created so that anyone with a defined debt to income ratio would have an easier time paying off their loans. (excluding PSLF which is a different program entirely). At least, that is usually the stated premise in the media and on government websites.

Setting aside the facts that pharmacy schools are not created equal , and that I am not attending a private or expensive out of state school, I would argue that I am acting in my best interest, since I chose the school that would help me meet my goals in the best possible way.

The way I see your argument is this way. If some store happens to price an expensive item below its market cost, in order to draw you in (taking a short term loss to accomplish a broader goal), would you refuse to buy that item on principle because you would be hurting the store and other customers who made less money than you by denying them that opportunity? No, you would buy the item because that is what the market is offering you. In the same vein, the government has made an offer to the people of america, in this case, any person who is taking out federal student loans, and risking/taking a loss, in order to accomplish its broader goal, which is to train more highly educated people and remove hardship from their loan payment.

I agree there is a strong argument that IBR may contain perverse incentives. However, taking advantage of the what the law provides , I believe, is more ethical than taking the so called high ground and making a sacrifice for some unknown 'others', whom you are ALREADY sacrificing for by paying your taxes.

As a professional, you will be contributing far more money toward these forgiveness programs than your public service peers, who will arguably (after low income, tax incentives, public service benefits) be simply "leeching" in the sense that they are directly taking the money from the public tax wallets without contributing anywhere near as much back in. The question of whether this economic distribution system is just is not one for an individual to determine, it is a question for society. Society has elected legislators who set up a repayment program arguably in society's best interest, and when doing so, specifically decided NOT to set an income cap.

Two other points i'd like to make are that

1. you KNOW banks, corporations, employers, and pretty much every other for profit entity in our society is looking out for their own best interest and doing whatever it takes, including throwing you under the bus to the extent legally permitted, every day. To not act in your own financial best interest is basically shooting yourself in the foot with regard to your future and the future of those around you who you support.

2. I happen to personally believe that the entire federally backed post-secondary education system is completely broken and filled with outrageous amounts of perverse incentives at every turn. I would argue that taking as much financial advantage of the system as possible is merely fair play given that you are basically being 'ripped off' no matter what loan repayment terms you are entering into, because of the fact that the government ultimately chose to allocate returns to private bank and loan servicing companies and school administrations in their crafting of the law, which is ultimately to all of our detriment. Why would you not take advantage of the returns that they allocated to us ?

 

[BMBiology]

IBR is an option. I briefly took a look at it. It seems like only federal loans qualify for IBR. In addition, if you are married and your spouse makes a good salary, then your monthly payment is much higher. Calculate here: http://ibrinfo.org/calculator.php

This website has good information: http://www.swlaw.edu/studentservices/finaid/ibr

 

[psychoandy]

Easy money and the push toward higher education and government incentives sound good now, until the for profit schools start popping up, the "nonprofits" jack up tuition to get as much of the pie as they can, and then the government takes a crapload of risk without getting compensated for it...oh wait, it's already happening.

Some might say education is a right, not a privilege, and I agree, but at what expense? This kind of thing is what causes bubbles. The only thing University of Phoenix/Everett Institute/insert for profit school here opening up a PharmD program is ACPE, and just barely... it'd be 240k for accelerated 3 year program...find your own rotation preceptors, and instant degree! NAPLEX pass not guaranteed...

My personal take on the "morality" of gaming the system...if you can afford to pay your loans, do so. If not, there's no shame in going into IBR. Just like if you can't afford a house because you're underwater and signed an awful contract, send the bank your keys and move and let them deal with the aftermath.

Finally, it really bothers me that 18 year olds can get 240k worth of loans at 6.8% or more for any education, ranging from 0-6 PharmD to allied health to auto mechanic to English majors...it's so absurd that 1.) they have no idea what they're getting into and that 2.) "predatory education" is allowed to exist. It bothers me even more that now people are like "oh sure get 240k worth of loans because Obama made it so you don't even have to pay that all back!!!!".

/rant

 

[civex]

The way I see your argument is this way. If some store happens to price an expensive item below its market cost, in order to draw you in (taking a short term loss to accomplish a broader goal), would you refuse to buy that item on principle because you would be hurting the store and other customers who made less money than you by denying them that opportunity? No, you would buy the item because that is what the market is offering you.

^ I believe this is flawed for a few reasons. One, you are not purchasing an item for under cost; you are overpaying on an item and then redistributing the difference in cost to other people. Two, the government does in fact do exactly what you are saying; the cost of public education is subsidized. This is the "store's" way of promoting education, and ideally a more productive society.

The part of IBR that I believe is BS is that this incentive, is only an incentive if you take on an obscene debt load, or are in a very low paying field; whearas subsidation of higher education pretty much lowers the cost for everyone who chooses to take advantage of the public education system. There is more equality.

What I see as your underlying arguement is that it's ok to take advantage of a a social safety net because in the future you will be contributing more than other members of society than others who are "leeching" or abusing the system and I think that's wrong. My thoughts are that if by being able to attain a professional degree and live the life that comes with it, that society has already given you your dues.

To address a few things; I am not making the choice of not using a program such as IBR due to morals; you don't have to worry about me not looking out for me and mine own first financially. My expected debt(student) will in a 10 year repayment plan be less than 10% of my income, so IBR wouldn't make sense, and I would not personally want to live with the restrictions. I do understand that people are primarily out for themselves first, but once a level of security has been reached, I haven't seen people being, "thrown under the bus." I know it has been brought up in other threads, but what happens if IBR goes to vote with a cap(say 100k) and you are stuck with with 200k+ capitalizing? And I agree that our secondary education is screwed up and would be more in favor of a German style system minus the marks. Sorry for the unorganized reply, but it's getting late.

 

[civex]

My personal take on the "morality" of gaming the system...if you can afford to pay your loans, do so. If not, there's no shame in going into IBR. Just like if you can't afford a house because you're underwater and signed an awful contract, send the bank your keys and move and let them deal with the aftermath.

Agree; it should be treated more like a default, not as a part of the plan.

 

[awval999]

The problem with IBR is that you are relying on the government to keep its word and for it all to work out. I can defintely see someone doing IBR that is way over their head, but who wants to constantly worry for the next 20-25 years if the good ole' government is going to keep its word and forgive those loans at the end of it. 20 years? I mean damn, that's a long time to worry. Your whole financial life is dependent on the government forgiving these loans.

 

[confettiflyer]

It bothers me even more that now people are like "oh sure get 240k worth of loans because Obama made it so you don't even have to pay that all back!!!!".

/rant

The College Cost and Reduction Act was signed by George W. Bush in 2007.

 

[confettiflyer]

I think you all are overestimating the "cost" of this program to the federal government.

Realize that a) marriage and b) inflation will eventually increase your payments under IBR and thus reducing the amount "forgiven" at the end of 20 years.

Fact: College graduates have higher rates of marriage than the general population.

Fact: College graduates marry each other = higher AGI

Debatable fact: we're on track for normal/above average inflation over the next 20 years.

Do the math.

 

[Socrates25]

Am I the only one who thinks this is wrong? When I took out my loans, I knew that I was entering into an agreement, within which I was to pay back the principle amount plus an agreed amount of interest. If you don't think pharmacy school is worth the investment; don't go, or improve your stats enough to attend a lower cost instate institution.

Thats what corporate america wants you to think. Meanwhile, they make "business" decisions all the time to move their debt to the american taxpayer.

Dont hate the player, hate the game.

 

[mustang sally]

Meh, I just don't see how people can bring morals into IBR. It's there, it's legal, it's a legitimate payment plan, use it if you need to and if it makes the best sense for you financially. I guess I wouldn't want IBR to encourage people to borrow with reckless abandon but all these loans wouldn't even be necessary if our educational system wasn't so messed up. Maybe the government should focus on making college affordable for normal people again.

 

[confettiflyer]

Morals and contract law shouldn't mix. Ever. I hate when people do that. Just because you sign something doesn't make it "immoral" to then go do something else.

It's all simply action --> consequence. Businesses do it all the time, individuals shouldn't be held to a different standard.

In our example here with IBR, not "immoral" to enter into an agreement with the federal gov't that effectively (not technically) changes the terms of the original loan. Besides, it's the fed gov'ts OWN loan, it's offering you new terms, you can take it or leave it. Pity the fools who turn it down taking the "moral" high ground.

Besides, the SCOTUS ruled in favor of corporate personhood, so by commutative property people should be free to act as their own corporation.

 

[xiphoid2010]

Do note that while outright cancellation of IRB to be less likely, government has a solid record of changing terms. E.g, pushing retirement age back, changing income level/brackets, adding AMT, etc.

 

[xtsukiyox]

Besides, the SCOTUS ruled in favor of corporate personhood, so by commutative property people should be free to act as their own corporation.

Win. I'm tired of being a sole prop. Maybe I'll be a c corp for a while.

Sent from my SPH-M900 using Tapatalk

 

[ttn003]

Just letting you all know that IBR is only good for those that are single. If you are married then you would have to combine your spouse's income with yours to determine your monthly payment. Therefore, it is going to be ALOT higher. However, you have the option to file taxes SEPARATELY in order to not have your spouse's income calculated towards the montly loan payment. But that means that you lose out on the benefits (lower tax brackets for being married). So overall, it balances out with what I calculated so far. I find it ridiculous that because you are married and file taxes jointly, you must include your spouses income when making that monthly payment.

 

[confettiflyer]

Just letting you all know that IBR is only good for those that are single. If you are married then you would have to combine your spouse's income with yours to determine your monthly payment. Therefore, it is going to be ALOT higher. However, you have the option to file taxes SEPARATELY in order to not have your spouse's income calculated towards the montly loan payment. But that means that you lose out on the benefits (lower tax brackets for being married). So overall, it balances out with what I calculated so far. I find it ridiculous that because you are married and file taxes jointly, you must include your spouses income when making that monthly payment.

Yeah, but not all marriages are "equal" in this assessment.

The biggest "losers" are going to be couples who have equivalent income. The biggest winners are those with a large income disparity between both spouses (already the case even before IBR/loan repayment). Different will be the couple who operates a small business (non sole prop, non LLC/pass through entity) and keeps income out of their personal AGI.

I think new rules were promulgated re: spouses with large balances on both sides and equivalent income?

 

[All4MyDaughter]

Yeah, but not all marriages are "equal" in this assessment.

The biggest "losers" are going to be couples who have equivalent income. The biggest winners are those with a large income disparity between both spouses (already the case even before IBR/loan repayment). Different will be the couple who operates a small business (non sole prop, non LLC/pass through entity) and keeps income out of their personal AGI.

I think new rules were promulgated re: spouses with large balances on both sides and equivalent income?

What kind of business structure are you talking about?

 

[awval999]

What kind of business structure are you talking about?

He would have to be talking about a full-C corporation. Or he could just not know what he's talking about.

 

[confettiflyer]

What kind of business structure are you talking about?

LLC's, S-Corps, and sole proprietorship income is "passed through" to its owners/shareholders, who then pay their normal income tax rate.

C-Corps are taxed as a separate corporation/entity.

So for the basis of this thread, if your spouse runs a c-corp, any income "made" by that c-corp stays within that c-corp and does not show up on their personal income tax return as income. Someone participating in IBR will benefit w/ lower payments.

*I am not a tax professional, just a pretend one.

 

[awval999]

LLC's, S-Corps, and sole proprietorship income is "passed through" to its owners/shareholders, who then pay their normal income tax rate.

C-Corps are taxed as a separate corporation/entity.

So for the basis of this thread, if your spouse runs a c-corp, any income "made" by that c-corp stays within that c-corp and does not show up on their personal income tax return as income. Someone participating in IBR will benefit w/ lower payments.

*I am not a tax professional, just a pretend one.

Please, start a C-corp and tell me how that goes. 🙂
Confetti your IBR posts make me smile.

 

[All4MyDaughter]

Allright, but aren't corporations taxed at higher rates? I just set up my own business and went with LLC (actually, PLLC) because of lower personal tax rates. Or so I'm told. But I find this all very confusing.

Apparently I also just got approved for IBR. Did I mention that this confuses me?

 

[geekgolightly]

Your debts are kind of high and your pay is kind of low for a pharmacist. I'm a 2011 grad and I'm on IBR now, and I will be next year too, because I only worked half of 2011 and they go by last year's income, but after that it's over. I'll make too much money. That's with a wife who isn't working and 2 kids. Granted my debts are less than yours (~160K), so my cutoff is lower.

Are there many pharmacists who can expect to consistently qualify for IBR?

It's also worth bearing in mind that, even though it's unlikely (IMO) that the government will do away with IBR, they might take it from you dirty upper 5%-ers, and leave it for baristas with $200,000 art history degrees.

EDIT: I see that you were assuming you will end up making $80K, not that you are now. Hopefully that's pessimistic, but I fear it might not be.

 

[spacecowgirl]

Are there many pharmacists who can expect to consistently qualify for IBR?

Not me. 👎

 

[a runner]

Just letting you all know that IBR is only good for those that are single. If you are married then you would have to combine your spouse's income with yours to determine your monthly payment. Therefore, it is going to be ALOT higher. However, you have the option to file taxes SEPARATELY in order to not have your spouse's income calculated towards the montly loan payment. But that means that you lose out on the benefits (lower tax brackets for being married). So overall, it balances out with what I calculated so far. I find it ridiculous that because you are married and file taxes jointly, you must include your spouses income when making that monthly payment.

You actually don't have to file taxes separately to use IBR if you are married. You can file jointly and both of your incomes are combined to pay the 15% of discretionary income (or 10% if you qualify) but it also takes into consideration the sum total of both of your student loan debts. It can work out pretty well this way for some, like my wife and I, since we'll both be using PSLF.

http://www.ibrinfo.org/update_July12010.vp.html

 

[a runner]

1. If you're taking out loans at the moment, obama's executive order should cover you, therefore making it a 20 year repayment.

I hope you're right, but from what I've read (unless something has changed since last October), it seems like the executive order states that it only applies to loans taken out after 2008, and only if a current loan from 2012 or later is taken out. This leaves those of use who started college before 2008 out in the dark I'm afraid and stuck with the 15%/25 year plan, unless I'm wrong, which I hope I am.

its also worth mentioning, there is a cohort of people who believe ibr is going to be cancelled in the near future , leaving students to foot the large bills from their ballooned loans. Personally i am banking on this not happening. There is also a group that argues the opposite point, that student borrowers will end up being forgiven a signficant portion of their loans in the near future anyway, due to generalized economic and debt collapse. Personally, i am planning on betting between these two outcomes, and taking a highly conservative path toward tax and taxable asset minimization. I would reveal my actual financial plans, but i would likely be attacked by people on this board who feel that i am "abusing" the system. Imho, it's up to each individual to look out for their own financial well being by playing the game and system as effectively as possible (and as selfishly as possible, after all that is capitalism is it not?)

Most of my family is in that cohort that questions the longevity of IBR/PSLF, but I tend to believe it won't be cancelled unless there is overall economic catastrophe, in which case the dollar will probably be destroyed by runaway inflation, in which case debts denominated in the hundreds of thousands of dollars will be nothing much anyways.

I don't feel that any plan you could have to take advantage of this program is abusing the system at all. The crony capitalists and industries that get fat subsidies and preferential treatment from the government sure aren't feeling like they "abuse" the system with their lobbyists (corn growers, sugar growers, big agriculture, companies like General Electric, so-called "green" companies, "defense" contractors, companies that get special government contracts or bailouts, larger corporations who can more readily afford excessive regulations, the federal reserve system, tax loopholes, the list could go on forever). I agree that you have to look out for your own wellbeing, especially since the system we have is far away from true freedom in the markets (or as some would call capitalism). IBR and PSLF are definitely a distortion of "capitalism" but when the system is already messed up beyond repair by the other distortions of a heavily mixed economy, IBR and PSLF are more like having the toilet get plugged as the titanic is sinking. Sure it's a nuisance, but there are other bigger things to worry about.

 

[PharmhopefulNC]

If you are married and both bring in a relatively high income, the tax implication for filing seperately will not be that significant - you are probably already in the higher tax bracket by filing together. The tax implications for filing seperately and therefore reducing your IBR will be far overshadowed by the amount of loan you are forgiven after 10 years of working for a tax-exempt non-profit entity. Most hospitals will qualify, and your loans will be forgiven after 120 qualified payments. I'd rather pay a slightly higher income tax than more than double my IBR monthly payment. When I run the numbers, my IBR should be $800-$900 monthly, instead of $2700 monthly if I file a joint return with my spouse.

Under the new IBR plan (2012 version) our incomes should not exclude us from qualifying. Under the current law we will be taxed on the amount of loan forgiveness (considering assets, family size, etc.), but this may change before our loans come due - the income contingent plans in the past did not require taxation of the forgiveness, and the advocates of this current legislation are trying to change this to apply to the current IBR as well. It is my understanding that the first loans that are eligible will not come due for payment until 2014.

You all say retail sucks - work at a non-profit, tax exempt hospital and have your loans written off in 10 years instead of 20. I say it's about time a government program really benefits us... I've paid my taxes and followed the rules... now I plan to take the IBR and loan forgiveness with the same attitude that we all have while we all search for any and all tax write-offs and credits at the end of each tax year. What is the difference? Do you really consider yourself ripping off the government by writing off whatever you possibly can on your federal and state taxes? Why would you think twice about taking advantage of something that is "law"? Will you also insist on paying tax on the growth of your Roth IRA just for the principle of the matter?

 

[drew0010]

If you are married and both bring in a relatively high income, the tax implication for filing seperately will not be that significant - you are probably already in the higher tax bracket by filing together. The tax implications for filing seperately and therefore reducing your IBR will be far overshadowed by the amount of loan you are forgiven after 10 years of working for a tax-exempt non-profit entity. Most hospitals will qualify, and your loans will be forgiven after 120 qualified payments. I'd rather pay a slightly higher income tax than more than double my IBR monthly payment. When I run the numbers, my IBR should be $800-$900 monthly, instead of $2700 monthly if I file a joint return with my spouse.

Under the new IBR plan (2012 version) our incomes should not exclude us from qualifying. Under the current law we will be taxed on the amount of loan forgiveness (considering assets, family size, etc.), but this may change before our loans come due - the income contingent plans in the past did not require taxation of the forgiveness, and the advocates of this current legislation are trying to change this to apply to the current IBR as well. It is my understanding that the first loans that are eligible will not come due for payment until 2014.

You all say retail sucks - work at a non-profit, tax exempt hospital and have your loans written off in 10 years instead of 20. I say it's about time a government program really benefits us... I've paid my taxes and followed the rules... now I plan to take the IBR and loan forgiveness with the same attitude that we all have while we all search for any and all tax write-offs and credits at the end of each tax year. What is the difference? Do you really consider yourself ripping off the government by writing off whatever you possibly can on your federal and state taxes? Why would you think twice about taking advantage of something that is "law"? Will you also insist on paying tax on the growth of your Roth IRA just for the principle of the matter?

Totally agree with you. I follow the rules, and I should get the benefit. I see nothing shady about what Im doing. Just going to follow the rules, most likely file separately from my wife if I'm married. Whatever I need to do as long as Im not breaking any laws I am okay with it.

 

[Rx MPLS]

I've run the numbers on IBR and I'm pretty sure I would end up paying more with that scheme than just paying my bills off right away when I graduate, even if I was able to work at a nonprofit for ten years and write some of the costs off. If you pop out a bunch of kids (you'd need more than 4 to really make a difference it seems), it might work in your favor, though...or if you stay single and have loan debts $250k+. Your mileage may vary, of course.

 

[Aznfarmerboi]

My advice is do not count on IBR. IBR is the next thing to bankruptcy/default. It is for people with 250k in debt making 40-60k with no hopes of paying off the loan anytime soon.

If you are not touching the principle on your loan, your loan will skyrocket with interest rates. Then when you try to get a mortgage or a loan, they will see that you have 350k in debt... and will turn you down because of your high debt to income level.

Also, you have to pay tax on the amount that is forgiven.

 

[type b pharmD]

If you are not touching the principle on your loan, your loan will skyrocket with interest rates. Then when you try to get a mortgage or a loan, they will see that you have 350k in debt... and will turn you down because of your high debt to income level.

Not true. One of my friends is doing IBR on a salary of about 60k and ~250k in loans and just bought a house with 150k mortgage. They do NOT count student loans for mortgage applications except for your *monthly* debt to income ratio. In this way, IBR actually will end up helping me or other people afford houses.

 

[Aznfarmerboi]

Not true. One of my friends is doing IBR on a salary of about 60k and ~250k in loans and just bought a house with 150k mortgage. They do NOT count student loans for mortgage applications except for your *monthly* debt to income ratio. In this way, IBR actually will end up helping me or other people afford houses.

Congratulations to your friends but the number does not add up. 60k after a very optimistic effective tax rate is 48k? How about property taxes? mortgage insurance? etc. I want to say that there is more to the story.

Maybe the market is different but I know it is hard to do the same in NYC/tri state area.

 

[type b pharmD]

Congratulations to your friends but the number does not add up. 60k after a very optimistic effective tax rate is 48k? How about property taxes? mortgage insurance? etc. I want to say that there is more to the story.

Maybe the market is different but I know it is hard to do the same in NYC/tri state area.

I apologize for being slightly inaccurate. His house is 150k but he did say he did a decent size downpayment (want to say 10-15%) , The monthly payment for principle alone in a situation like this is ~$350-400/month. I'm sure with a $3000-4000 monthly take home that it is affordable. ($350 + interest + insurance + tax)

 

[CUninja]

My advice is do not count on IBR. IBR is the next thing to bankruptcy/default. It is for people with 250k in debt making 40-60k with no hopes of paying off the loan anytime soon.

If you are not touching the principle on your loan, your loan will skyrocket with interest rates. Then when you try to get a mortgage or a loan, they will see that you have 350k in debt... and will turn you down because of your high debt to income level.

Also, you have to pay tax on the amount that is forgiven.

Not with public service loan forgiveness.

"Q3 Are loan amounts forgiven under PSLF considered taxable income?
A3 No. According to the IRS, student loan amounts forgiven under PSLF are not considered income for tax purposes. (February 3, 2010)"
http://studentaid.ed.gov/students/attachments/siteresources/PSLF_QAs_final_02 12 10.pdf