IBR still safe with new dept bill?

[Igor4sugry]

---

Members do not see this ad.

I just want to find out whether IBR is still in place with the passage of the new dept bill. How long will it last with all the budget cuts?

 

[yankswin2011]

Look, the IBR is not going away anytime soon because it was introduced by Bush, a Republican, and furthered by Obama, a Democrat. Another words, there's support from both parties and Medicaid, Social Security, Medicare, Defense spending will get cut first before they touch student loans.

Second, there's no free lunch here -- you need to read the fine print. At $200K, about 6-8% interest rate, after 25 years, including inflation, it's almost $400-500K if you paid the minimum. At the end of the 25 years, the $400K-500K will be "forgiven" but it will be treated as income for Income Tax Purposes, meaning you will have the pay back the Federal Government another $100K due immediately. So the Government WILL get its money, and a lot more. But in return, you get the stability of 10% (or 15%) discretionary income -- you will end up paying about $100-200K more but that's the trade-off.

I mean, this is brilliant for the federal government because they loan you out at 6-8%, and with inflation, they're actually making money off of us in the long-run. Another words, they loan you about $200K in 2011, they will get back about $300K or so in 2035, and discounting inflation, the federal government made $100K. Not bad. For once, the federal government is ACTUALLY making some real money compared to all these other entitlement programs such as Medicaid, Medicare, Social Security, Defense where it's just all money going out, nothing coming in.

And then, as doctors, you will probably be at the top of the income bracket and the federal government can hit you up by higher income taxes -- so they help you with your education so that you get your high paying salary, only to give it back to the federal government via higher federal income taxes -- it's brilliant!

So in essence, about 33-39% of your income goes to the federal government via federal income taxes, then another 10-15% on IBR, so essentially, 50% of your income goes to the federal government for 20-25 years, then the Feds hit you up again in 25 years for about $100K in income tax because forgiving the $300-400K is considered "income" for tax purposes. So no, the federal government is not getting short-changed by the doctors.

However, the federal government is going to get short-changed by those who take out over $200K in loans and not have the type of income doctors have to pay back -- those are the ones the Feds will lose money on.

Also, from the public policy angle, in theory, if you get more education, your chances of employment are generally higher. For the federal government, the more people who are employed, the more people they can tax and so, if they appear to lose up-front on the "IBR" plan, they will get back indirectly through more revenue from income tax because you are, in theory, hopefully making more (hence more taxes). Whether they get $200K all back -- they will live with what they make up via income taxes.

 

[Phlame217]

One thing you forget is the Public Service Loan Forgiveness program which can be used in conjunction with the IBR payment system.

Simply make 120 on time payments, the rest of your loans are forgiven (and ISN'T taxed like with the 25 year forgiveness, see below). As long as you work for a public institution, 503c, etc you qualify.

Public service loan forgiveness is not taxable under section 108(f) of the Internal Revenue Code. See Taxability of Student Loan Forgiveness for additional details.

For most doctors, you will do your residency in a hospital format which will count towards the repayment goal. For some one like me this means my goal of something along the lines of Interventional Cards or Interventional Rads which encounters a 6-7 year residency means when I make attending status I'll have to retain working at a public organization for 3-4 years to then walk away with a clean slate.

So while I'm making these measly IBR payments, I will be putting the money I do make that could go to extra payments into a Roth IRA or investment of some sort (depends on the economy at the time) and so hopefully by the time I am free of loans I will already have a decent retirement built up.

 

[yankswin2011]

One thing you forget is the Public Service Loan Forgiveness program which can be used in conjunction with the IBR payment system.

Simply make 120 on time payments, the rest of your loans are forgiven (and ISN'T taxed like with the 25 year forgiveness, see below). As long as you work for a public institution, 503c, etc you qualify.



For most doctors, you will do your residency in a hospital format which will count towards the repayment goal. For some one like me this means my goal of something along the lines of Interventional Cards or Interventional Rads which encounters a 6-7 year residency means when I make attending status I'll have to retain working at a public organization for 3-4 years to then walk away with a clean slate.

So while I'm making these measly IBR payments, I will be putting the money I do make that could go to extra payments into a Roth IRA or investment of some sort (depends on the economy at the time) and so hopefully by the time I am free of loans I will already have a decent retirement built up.

Very nice -- that is definitely the way to go. For your plan -- since the Feds will likely lose money -- they might figure it out pretty soon and amend the law. So the key is to get your 10-year Residency done before the Obama Administration leaves offices (assuming Obama will be re-elected) because the Republicans won't let this slide.

With respect to the "grand-fathered in" argument, you may have a difficult argument because it's one thing where you're "working" in public interest (i.e. social worker), it's another thing where you're essentially "interning/training" so they might try to make that distinction. But so long as it's the current law, I would ride it for however long because the benefit (loans totally forgiven with no income tax) outweighs the risks (changing of law -- changing laws is a complicated process that will take some years to occur). So yeah, you should def. go for it, but keep it down low -- don't go around telling everyone -- I would guarantee you that your friends who got a scholarship or paid 100% of it (i.e. through family support) would be super-pissed because they are essentially paying for your education indirectly through taxes, and might try to "turn you in."

 

[Phlame217]

Oh haha, yea I know. The only downside is I may get switched to the 10-year payment plan once I hit attending status but those payments continue to count towards the 120 payments.

And as far as disappearing and all, I doubt this will go away. They are pulling subsidies out of higher ed so much that they have to do crap like this to support those burdened with humongous debts. All I need to do is have it last long enough to start my payments and then I would have to be grandfathered in. Its no different the when they switched from hardship deferred loans to the IBR plans, those who graduated the summer of the change are still allowed to defer as opposed to make payments.

 

[yankswin2011]

Oh haha, yea I know. The only downside is I may get switched to the 10-year payment plan once I hit attending status but those payments continue to count towards the 120 payments.

And as far as disappearing and all, I doubt this will go away. They are pulling subsidies out of higher ed so much that they have to do crap like this to support those burdened with humongous debts. All I need to do is have it last long enough to start my payments and then I would have to be grandfathered in. Its no different the when they switched from hardship deferred loans to the IBR plans, those who graduated the summer of the change are still allowed to defer as opposed to make payments.

First, I agree that the IBR program will not go away because as I discussed, the Feds are making money (and lots of it) if you do the 25-year program, especially since doctors will likely be able to pay all 25 years straight. It's a win-win for the Feds --- they get to tax you more because you earn more as a doctor and they get 15% of your income after taxes, not bad.

"All I need to do is have it last long enough to start my payments and then I would have to be grandfathered in."

True, for the sake of argument, they will probably let you do the IBR plan for 10-years at 15% discretionary income, that's a fair shake. But what's your argument if they try to treat your loans as income tax purposes, like they do with the 25-year plan? Obviously, your "grandfathered in" argument makes sense with respect to relying on the 15% discretionary income plan, but your argument might not be as strong with respect to Feds deciding to tax you on the forgiveness.

I am highly skeptical of the IRS when it comes to "grandfathered in" argument because one can argue that I became a physician because I wanted to make X amount, which is currently taxed at 33-39% and thus, I'm "grandfathered in" at this 33-39% income tax bracket -- you can't force me to pay more taxes -- obviously we all know this ain't true because the Government can raise taxes easily. At the end of the day, if the Feds decide to tax you after the 10-years, what are you really going to do? Not pay and they'll just deduct from your wages -- so the Feds have all the power and leverage and we really don't have much because (a) we're going to work in the U.S., and (b) so long as we do work in the U.S., the Feds will just garner your wages to pay your income tax. I guess you can sue the Federal Government for detrimental reliance -- i.e. I relied on your promise that you would forgive my loans in 10-years and thus, I relied on your promise to my detriment -- but arguing that residency/fellowship is a "detriment" is suspect at best because the Feds will argue that's not a "detriment" because you were going to do it anyway. Another words, a judge will rolls his eyes when he hears the argument, oh I decided to do a 10-year residency/fellowship because I relied on the public interest program, as opposed to a 3-4 year general residency -- but you will get quickly shot down because the Feds will argue, well, aren't you going to be earning more, and then, your argument kind of dies there because I don't see how getting more training to get paid more is a "detriment." This is not the typical social worker making $30,000-$40,000/year -- without even breaking down -- one with a reasonable mind can see the big difference between what you're doing and this $30K social worker. The IBR Public Interest, I think, was really designed for this $30K social worker and not scheming it to one's advantage but as I said, until they change the law, ride it out however long you can -- you have all to gain, not much to lose. Good luck!

 

[toothless rufus]

What if your residency is at a for profit hospital?

 

[TMP-SMX]

What if your residency is at a for profit hospital?

Depends on where they get your funding for your salary.