PhD/PsyD Income-based repayment for PsyD

[psycquestion7]

I am a senior applying to my top 5-6 choices this year, mostly PsyD programs with good placement and licensure rates, fully prepared to not get in and apply to a broader range next round. My main question is for anyone who has gotten a PsyD and utilized income-based repayments to pay it off. I met with a debt counselor who walked me through the process and what to expect (10% of income for 20 years, followed by forgiveness, with a tax bomb). It sounded pretty manageable to me, but I was wondering what others think/have experienced. My main interest is obviously working as a clinician, and I am also applying to a few counseling PhD programs with faculty whose research aligns with my interests (psychology of gay/bisexual men). I'm not opposed to MSW's either.

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[mypointlesspov]

I am a senior applying to my top 5-6 choices this year, mostly PsyD programs with good placement and licensure rates, fully prepared to not get in and apply to a broader range next round. My main question is for anyone who has gotten a PsyD and utilized income-based repayments to pay it off. I met with a debt counselor who walked me through the process and what to expect (10% of income for 20 years, followed by forgiveness, with a tax bomb). It sounded pretty manageable to me, but I was wondering what others think/have experienced. My main interest is obviously working as a clinician, and I am also applying to a few counseling PhD programs with faculty whose research aligns with my interests (psychology of gay/bisexual men). I'm not opposed to MSW's either.

Absolutely do not enter any program with the expectation of forgiveness. Things are way too up in the air to rely on that 20 years down the line. I would recommend looking into funded PhDs if your career goals include assessment (and research) or MSW/Counseling masters if you just want to do therapy. The debt to income ratio for most PsyDs is not worth it.

 

[Sanman]

Something to consider in the future is how marriage may affect income and income-based repayment. I would speak to the debt counselor about that. Especially if both of you are in that boat.

 

[Temperance]

OP, you need to read this thread: A PsyD story (mostly $$$ talk)

 

[AcronymAllergy]

Added note: for graduate loans, I believe it's 25 years (20 for undergrad).

 

[PsyDr]

90,962 student loan borrowers have submitted 110,729 applications for public service loan forgiveness. 1,216 applications have been approved.

I don’t know about you, but a 1% chance isn’t an acceptable risk for that kind of money.

Don’t plan on being an outlier on the positive side, or on the negative side. We all know or know if people that have had exceptional outcomes (Tina Feys husband, Hugh Jackman’s wife). It’s be great if it happened, but Vegas is built on the dashed dreams of people for whom the odds were exactly what you’d expect.

Broken Promises and Debt Pile Up as Loan Forgiveness Goes Astray (Published 2019)

A federal loan forgiveness program made a promise to students: Stick with your vital but low-wage professions and your debts will be wiped clean. Then they weren’t.

www.nytimes.com

 

[erg923]

So, you take out 300,000 dollars and end up paying like a 1/3 of it back over 20 years? I would look for that deal in the promissory note.

That said, it seems somewhat ridiculous to me that 20-25 years from now the IRS wont have yet gotten a clue about this reality and would actually enforce/attempt to collect a 100,000 (or whether) lump some debt forgiveness payment???

 

[Sanman]

90,962 student loan borrowers have submitted 110,729 applications for public service loan forgiveness. 1,216 applications have been approved.

I don’t know about you, but a 1% chance isn’t an acceptable risk for that kind of money.

Don’t plan on being an outlier on the positive side, or on the negative side. We all know or know if people that have had exceptional outcomes (Tina Feys husband, Hugh Jackman’s wife). It’s be great if it happened, but Vegas is built on the dashed dreams of people for whom the odds were exactly what you’d expect.

Broken Promises and Debt Pile Up as Loan Forgiveness Goes Astray (Published 2019)

A federal loan forgiveness program made a promise to students: Stick with your vital but low-wage professions and your debts will be wiped clean. Then they weren’t.

www.nytimes.com

I believe the OP is talking a regular income based repayment plan for federal loans and not PSLF. I would never suggest PSLF. I would also run the numbers on what your debt load would balloon to in 25 years with an average paying job in the field. If you make interest only or less payments for 25 years based on income, $200k borrowed can be up to a $550k tax bomb. This is then taxed as ordinary income that year. Good luck knowing what the rate rate will be in 25 years on 4,5,or 600k income, especially if you are a democratic socialist.

 

[PsyDr]

I believe the OP is talking a regular income based repayment plan for federal loans and not PSLF. I would never suggest PSLF. I would also run the numbers on what your debt load would balloon to in 25 years with an average paying job in the field. If you make interest only or less payments for 25 years based on income, $200k borrowed can be up to a $550k tax bomb. This is then taxed as ordinary income that year. Good luck knowing what the rate rate will be in 25 years on 4,5,or 600k income, especially if you are a democratic socialist.

My bad.

The current student loan rate makes it really easy to calculate. Rule of 72s. Capital doubles every 10 years, at 6.8% interest.

 

[Sanman]

My bad.

The current student loan rate makes it really easy to calculate. Rule of 72s. Capital doubles every 10 years, at 6.8% interest.

That's true. So, if we ballpark income at $100k, that means $10k annually on IBR payment of 10%. Annual interest is $13.6k. That means on IBR you are adding $3600 of debt to your loan each year for 25 years. That actually results in a $1.2 million dollar tax bomb if my mental math is correct. Damn! How much will one owe on that in income tax if we increase taxes in the future (as will likely happen)?

 

[AcronymAllergy]

I think a general theme of the information above could be reported as: the monthly payment over the 25 years of repayment would likely be manageable (that being the idea behind income-based repayment), although can be affected by things such as marriage.

However, the manageability of the tax bomb of forgiveness after 25 years is much more up in the air. If a person hadn't been preparing for it over those 25 years by stashing away some of the money saved by being on IBR/REPAYE/etc., I don't suspect it would be feasible without some type of loan.

Mind you, the above figures assume static income over 25 years, while in all likelihood, you'd hopefully be increasing your income over your career. Whether that increase would actually result in paying enough to at least match interest and start paying down principle, I don't know.

 

[erg923]

However, the manageability of the tax bomb of forgiveness after 25 years is much more up in the air. If a person hadn't been preparing for it over those 25 years by stashing away some of the money saved by being on IBR/REPAYE/etc., I don't suspect it would be feasible without some type of loan.

Do you/we really think the IRS is going to blindly enforce such a nonsensical and unrealistic collection attempt after John Q. Citizen has paid his IBR plan bill for the previous 20-25 years??? LOL. I call bull-honky on that.

I bet there is at least one or more other payment plans and/or loan forgiveness plans passed before then.

 

[WisNeuro]

This seems absurd. Do we really think the IRS is going to blindly enforce such a nonsensical and unrealistically monetary collection attempt after John Q. Citizen has paid his IBR plan bill for the past 25 years?

You don't know the IRS very well. They'll definitely attempt to collect. People will go from a payment plan in IBR, to another payment plan to pay off the taxes. The only way out of this one is debt forgiveness through an act of Congress.

 

[erg923]

You don't know the IRS very well. They'll definitely attempt to collect. People will go from a payment plan in IBR, to another payment plan to pay off the taxes. The only way out of this one is debt forgiveness through an act of Congress.

Embarrassingly....I do. Due to a mishap 2 years ago.

It would be an impossible nightmare to do what they think they say they are going to do with this so called "Tax-Bomb." I do not believe for second that will actually happen.

 

[WisNeuro]

Embarrassingly....I do. Due to a mishap 2 years ago.

It would be an impossible nightmare to do what they think they say they are going to do with this so called "Tax-Bomb." I do not believe for second that will actually happen.

Considering the amount that is at stake, they will attempt to collect. Presumably, they would try to negotiate a repayment plan. For people that outright refuse, they can levy property and/or garnish wages. This would not be impossible at all, the IRS does it every day for other things. I don't know if the best advice to student borrowers is "don't worry, the IRS won't REALLY collect..."

 

[erg923]

Considering the amount that is at stake, they will attempt to collect. Presumably, they would try to negotiate a repayment plan. For people that outright refuse, they can levy property and/or garnish wages. This would not be impossible at all, the IRS does it every day for other things. I don't know if the best advice to student borrowers is "don't worry, the IRS won't REALLY collect..."

I do not believe, nor do any accountants I know believe.... that that would be a realistic/collectible tax burden...much less the fact that this is subject to 10 and 20 years of review by congress and subsequent presidential administrations.

Personally, I don't advise or believe in any of these programs that students may wish would happen. I do, however, believe that this "Tax Bomb" thing that people talk about is a totally ridiculous and unnecessary worry.

 

[AcronymAllergy]

I wouldn't doubt that something eventually happens with the tax bomb to make more manageable. I just wouldn't want to bet my literal financial future on it.

And after some Googling, I've discovered that most/all of the income-based repayment plans do help to cap or otherwise manage capitalized interest to some extent. So the tax bomb could still be large, but perhaps not quite as ridiculous.

 

[PsyDr]

I do not believe, nor do any accountants I know believe.... that that would be a realistic/collectible tax burden...much less the fact that this is subject to 10 and 20 years of review by congress and subsequent presidential administrations.

Personally, I don't advise or believe in any of these programs that students may wish would happen. I do, however, believe that this "Tax Bomb" thing that people talk about is a totally ridiculous and unnecessary worry.

If you know of a credit backed security that is going to fail, you can make some very big money shorting it. If you're sorta sure, starting selling naked puts for Navient and Nelnet (I'd avoid Wells Fargo) I've made money selling puts, but never naked. If you are 100% sure it's gonna tank, get a reverse mortgage, and buy super LEAP puts for Navient (there's none for Nelnet).

 

[Sanman]

I do not believe, nor do any accountants I know believe.... that that would be a realistic/collectible tax burden...much less the fact that this is subject to 10 and 20 years of review by congress and subsequent presidential administrations.

Personally, I don't advise or believe in any of these programs that students may wish would happen. I do, however, believe that this "Tax Bomb" thing that people talk about is a totally ridiculous and unnecessary worry.

Is it or will the can get kicked down the road? I think there will be IRS repayment plans and maybe garnishment of SS. After all, the tax bomb for most will not be near that bad.

 

[AcronymAllergy]

Is it or will the can get kicked down the road? I think there will be IRS repayment plans and maybe garnishment of SS. After all, the tax bomb for most will not be near that bad.

Another good point. As of a few years ago, it looks like the average total graduate school student loan debt was around ~$70k. The number of folks pursuing a doctorate in psychology with loans above that amount is probably relatively small in the grand scheme of things, and addressing the tax bomb problem for those folks may not be on the radar of many politicians.

To the OP, you can also use the government's Student Loan Simulator available here: https://studentaid.gov/loan-simulator/ to see the information it might give you about repayment. And there are numerous student loan repayment calculators available online, which could give you an accurate idea of the monthly payment on each of the various repayment plans.

 

[ToneTone]

I am just starting to pay very little towards my loan amount being a post-doc and signed up for income-based repayment. My partner helped me do a lot of math on a spreadsheet one night with my high debt load going to a free-standing school. It appeared pretty manageable and we thought of some ways to save for this "tax bomb." Ended up finding similar calculations through the Student Loan Planner site's excel sheet. I think they will email to you so you don't have to do the math. Looking back, I am not happy at all with my choices. I would tell anyone not to accrue this much debt and if you're only interested in therapy, to go for a masters program instead at a state school. I don't even want a family, own a home etc. and the thought of just paying this back in hindsight, was not worth the time spent working years with little or no pay. Where I live (very expensive area), I'm not happy with what my prospective salary is in the future. Much rather have just stuck with a career that ultimately would have lead to the same salary without the crazy debt. However, it's a fulfilling job etc, but I don't think I needed a doctorate to feel fulfilled. The masters would have been fine for just therapy.