**sorry, this is long, but it's my most honest take on the program yet. grab some popcorn**
These last two pages make me smile, finally some GOOD discussion on PSLF.
Tax code has always created winners and losers. Bitching about having gov't pay off someone else's remaining student loan balance is the same as bitching about someone buying solar panels and getting 30% of the price back from the gov't, or bitching that the mortgage interest of a home buyer distorts the market and is unfair to renters, or having kids and getting another $4k exemption on taxes is unfair to childless or infertile people.
All valid points and arguments, but if you want to be consistent, you have to admit that railing against PSLF but staying silent on those other deductions is hypocritical. You want to be a winner, and under current law (not necessarily future law), you are not. Try again next time.
I'm like the poster child of PSLF excess, I found out about the program and IBR my P-2 year and cranked up my borrowing to maximize the benefits. I penciled out the risks (tax and legislative changes) and the benefits (>$250k potentially forgiven) and figured it was worth a go. I pocketed my intern earnings and used that to travel extensively during school (Europe, Asia, many trips back to California, etc...) and eat and explore the east coast during my four years there. I didn't live in the most expensive high rise tower, but I didn't live in "student poverty housing" either. I ate out 3x/week+ and pretty much went out every weekend.
Everything from that point on involved minimizing AGI, which is no different from everyone's tax strategy today, but there was an additional benefit for every dollar I could deduct.
I graduated and did residency, and because of the lagging nature of IBR/later REPAYE, I enjoyed a sub-$500 payment for at least a year. In fact, the first year was somewhere in the range of $300 because I launched a side business the previous December and incurred a $5000+ net loss in start up costs. As previously discussed on here, I made sure to turn a technical profit (underreporting any losses) in 3 out of the 5 ensuing tax years. Properly placed, those two unprofitable years can generate a lot of deductible business losses. Remember, each dollar of reduced AGI pays dividends with the IBR/REPAYE payment.
A few things have thrown off my calculations and plan:
1) Income A - my W-2'd income is much higher than I originally thought it would be at graduation time. This proportionally contributes to a higher IBR/REPAYE payment and therefore reduces the eventual PSLF benefit. I cannot easily reduce this income for federal tax purposes.
2) Income B - my Schedule C "hobby/business" somehow turned into a much bigger thing and in year 5 of existence started generating a lot of income. I had flexibility in hiding this, so I opened an Individual 401k (with Vanguard, if you were wondering) and shoveled this money in there to keep my AGI from blowing up. I had to incorporate ASAP and now I draw a minimal salary from the company and retain the earnings within the company. I had to establish cafeteria plan accounts to further shovel my minimal salary into tax-free buckets. It's a lot of freaking paperwork and compliance with federal/state laws is tricky. I still maintain my Schedule C/sole proprietorship as a capital purchase/lease back business so I'm back on the "3 out of 5" plan with respect to losses and profits. I'm one of 3 shareholders of the company and my intent is to pay myself via dividend after PSLF is completed.
My biggest fault was I was really conservative in my income calculations and its growth each year. Probably all the doom and gloom on these boards. Oh well. I initially calculated a a $250k forgiveness and $190k paid. I keyed in my actual income/growth and now I'm looking at $227k paid and $204k forgiven. BUT, with REPAYE expansion, I jumped in, my payments dropped to 10%, and the #'s came roaring back, with $151k paid and $268k forgiven.
Is all of this worth it, at just short of the halfway point? I'm not entirely sure. I didn't think I would be neck deep in tax strategy at this level, luckily it's kind of fun (like a puzzle). Had I gone the "fiscally prudent" path in 2007, borrowed only tuition ($28k x 3, $40k x 1), kept interest from capitalizing (I grossed $23k a year as an intern, 30hrs/week @ $15/hr), and made standard 10yr payments, I would have paid $199k. I would have likely refinanced like many on here and paid less ($170k total @ 4%).
So again, confettiflyer, was it worth it? Still not sure, but I'm inclined to say yes only because if the final cost difference between my current REPAYE/PSLF endeavor vs. a fiscally prudent path is $19,000, the amount of stuff I was able to experience (travel, social time out) and accomplish (investing, saving, buying a house, etc...) was worth it. I admit I could have probably accomplished most of it without IBR/REPAYE/PSLF had I gone the other way. There are too many variables going forward, but the #1 thing is income, and if we hit a huge patch of inflation, and wages rise accordingly, then game over. I will organically pay off the entire balance with minimal PSLF benefit at the end...and all of this "strategery" was for nought.
I probably could not fully recommend anyone starting now to go down this path -- my advice is to borrow for tuition, find an intern job, work like a dog, and minimize expenses, if anything, just to avoid this morass of accounting hell. Obviously, borrow more if you can't find an intern job and need to pay rent.
*yes, all my numbers are rough, don't hold me to them!
**notice, in each instance I list above, I pay > 60% of the original principal I took out, and as high as 90.8% before Obama expanded PAYE (I keyed in $250k to start, but I think my actual balance was much less, see above asterisk). That's pretty much buying solar panels and getting 30% back. The interest charged by the federal gov't is largely profit seeing as the 10 year treasury bill is like 2.4%. So borrow at 2.4%, lend at 6.8-8.5%? Know your #'s before you attack with the "ultimate amount being forgiven" number that will inevitably float around.
