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deleted738762
Anyone know where I can find information on the plan where after I think 10 or 20 years whatever if left is forgiven. I think you pay 10% every year or something.
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deleted738762
of if there is anything better out there just in case I go to a private school.
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What does that mean?
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Say you've been paying off your loans for like 25 years at the payments asked for by one of the income-based programs.
At year 25, there will still be some amount left. Likely a very large amount ($300K++) because the monthly payments for income-based repayment were so small and interest continued to accrue.
That $300K++ will be forgiven, so you won't owe it, but it will be counted as your income that year, so you will pay taxes on it.
So that year where your loans are forgiven, if you made $150K from dentistry, and then $300K in loan forgiveness that year, your income will be seen as $450K, and you will pay taxes on $450K, which today, assuming you're single and live in a state with zero income tax, is around $147K.
Hence the term "tax bomb."
However, if your outstanding loan balance is even higher, say $600K, then with your $150K income, you'll be looking at a tax bomb of $272K. Basically a house.
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Tax bomb indeed! Thank you for the explanation.
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My pleasure - glad it helped!
D
deleted738762
So is this even worth it? What's your take on it?
D
deleted738762
Will do this is what I needed. Thanks
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I have no clue, to be honest. Tax rates could change in the future (thereby changing the tax bomb), programs could be cancelled or amended, job market could be drastically different, etc. There's just too many variables for me to make a determination.
What do you think?
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If you're still paying your student loan back after 20 years, they've already won. That's a ton of interest you've given them, most likely far more than is forgiven if you can find somewhere that does that. If I were you I would plan on a max of 10yr term, but ideally 7yrs or less. Also, you can only deduct up to $2,500 of the interest annually (and can no longer deduct it if you earn more than $80,000 if you're single or $160,000 as a couple).
You could always refinance into an adjustable to get the lowest rate (and refinance bonus sometimes) and then refinance with another company as the rate starts to increase (and bank another refinance bonus). If this makes you feel uncomfortable then go with a fixed rate.
You could always refinance into an adjustable to get the lowest rate (and refinance bonus sometimes) and then refinance with another company as the rate starts to increase (and bank another refinance bonus). If this makes you feel uncomfortable then go with a fixed rate.
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The financial reality is that if one thinks they might use an Income Based Repayment plan with Pay as Your Earn, all along you SHOULD be setting aside some income from basically every paycheck in a saving account earmarked for that future tax hit you're going to end up with. Worst case, you'll have the cash to make that payment in the future. Best case, you'll have some extra cash available for other things such as management of other debt, additional retirement savings contributions, future kids college funds, etc.
Just make a proactive plan (IDEALLY with automatic withdrawing from your paycheck directly into this savings account so you're not even tempted not to save the $$) and then stick to it.
The tax code, as many will likely learn at some point, is a giant, complicated thing that has a bunch of "hidden" things that can easily result in a sizable tax bill if one isn't aware of things....
Kind of like one of my first years in practice as an associate, when I found out arguably that the biggest oxymoron in the tax code is something called the "alternative minimum tax" as there was nothing minimal about what my alternative minimum tax amount ended up being that year, verses what my tax liability via my regular 10-40 filing said I was owing that year... 
Just make a proactive plan (IDEALLY with automatic withdrawing from your paycheck directly into this savings account so you're not even tempted not to save the $$) and then stick to it.
The tax code, as many will likely learn at some point, is a giant, complicated thing that has a bunch of "hidden" things that can easily result in a sizable tax bill if one isn't aware of things....
Kind of like one of my first years in practice as an associate, when I found out arguably that the biggest oxymoron in the tax code is something called the "alternative minimum tax" as there was nothing minimal about what my alternative minimum tax amount ended up being that year, verses what my tax liability via my regular 10-40 filing said I was owing that year...
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When you've got a 20 TRILLION dollar national debt, and elected officials who really seem to love the multitude of spending programs in each and every federal budget. I wouldn't be too sure that ANY potential revenue source (Washington speak for "tax increase") isn't on the table at some point, even if it may have been already taken off the table.
Still much better to save and plan for the worst case tax scenario then be faced with a potentially large tax bill, seemingly out of no where, in the future......
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Just pay your loans as quickly as possible. ~4-8 years
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Isn't the better option to pay the minimum for a few years so you have immediate assets, and as your pay increases, you attack it more aggressively? This is my plan - I'm married and have kids. They like to eat now.
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Lol I like to eat now too. I would think minimum payments are best for the first few years after school (if your goals are to maximize income). This way, as you said, you can accrue more assets. I am hoping for HPSP, but if I must take out loans, my immediate concerns after school will be specializing then opening a private practice.
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I'm doing the IBR minimum payments for 20 years (on year 5), so I'll let you all know how it turns out with that tax bomb! Ha! I know it sounds irresponsible, but paying the minimum on IBR has allowed me to buy a modest practice and a modest house, two good investments. The practice provides me with greater income and more time than I would have as an associate and the house, well, it's nice not living in an apartment anymore. This strategy also allows me to enjoy more of the time I have with my kids before they get old and move out. The downfall (maybe) is that I'll have to go live with them in the future if the IRS takes my house!
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It doesn't sound irresponsible at all. You do what you got to do. There are many ways to make it to the top.
