What if..

[tompharm]

I was wondering if anyone knew about the IBR program for student loans. I was wondering about the possibility of never getting a full-time job in pharmacy. What happens if I cant pay off 200k in student loans in 25 years. I hear they are forgiven but you still have to pay taxes on the amount forgiven. What do you do if you get hit with like 100-300k in taxes? Do they take everything you own, send you to jail, or just put you on a repayment plan , at a rate that you can pay a little at a time and possibly later offer a settlement.

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[type b pharmD]

You file IRS form 982, and owe the value of 20-30% of the loan balance remaining, or 20-30% of your declared assets, whichever is lower

Search the forum for form 982 or 'insolvency exclusion' this has been discussed ad infinitum.

The IRS will not break you after loan forgiveness. They will expect you to pay a percentage of the owed tax based on how wealthy you are during the year of and the year prior to forgiveness.

 

[BMBiology]

For now any amount that is forgiven will count as "income" and therefore you would need to pay tax on it.

But who knows what is going to happen 20 or 25 years from now. Will the politicians change the program?

Soon some people will have their student loans forgiven thru the PSLF program. Let's see how the public will react when they hear how some surgeon got his 300 k in student loan forgiven.

I think someone calculated that if you make a regular pharmacist income and owe less than 250 k in student loans, there is nothing to be "forgiven" after 25 years. You will pay all of it plus the 25 years of interest.

Of course your monthly payment is not static. As your salary goes up, your payment also goes up. If you married to someone who also works and doesn't have much student loans, your payment goes up. In addition since you are only paying the minimum, interest will continue to accrue and it gets compounded to the principle.

 

[tompharm]

You file IRS form 982, and owe the value of 20-30% of the loan balance remaining, or 20-30% of your declared assets, whichever is lower

Search the forum for form 982 or 'insolvency exclusion' this has been discussed ad infinitum.

The IRS will not break you after loan forgiveness. They will expect you to pay a percentage of the owed tax based on how wealthy you are during the year of and the year prior to forgiveness.

So if I get 50-100k in taxes on the amount forgiven... I will only have to pay 20-30% of my assets if I don't have the money?

 

[type b pharmD]

[



So if I get 50-100k in taxes on the amount forgiven... I will only have to pay 20-30% of my assets if I don't have the money?

Yes. Lets say you get 600k forgiven and have 100k in assets. If you were "solvent" (which by irs definition means having 600k+ in assets in this example), you would owe ~180k based on the value of the loan. Since you only have 100k in assets, you would in actuality owe roughly $30k.

While you should absolutely not take my word for it, I have *heard* the irs will allow payment plans and settlements *in general* . I imagine in this case an arrangement would depend on how liquid your assets are. But overall on this type of tax I believe they would pretty much expect it up front (the $30k).

Hth.

 

[pezdispenser]

Yes. Lets say you get 600k forgiven and have 100k in assets. If you were "solvent" (which by irs definition means having 600k+ in assets in this example), you would owe ~180k based on the value of the loan. Since you only have 100k in assets, you would in actuality owe roughly $30k.

Don't think of your situation now, but 25 years after you graduate when you are about age 50. They will look at all your assets including your house and 401(k). Do you really want to be 50 y/o and have only $100k in assets?

 

[confettiflyer]

While you should absolutely not take my word for it, I have *heard* the irs will allow payment plans and settlements *in general* . I imagine in this case an arrangement would depend on how liquid your assets are. But overall on this type of tax I believe they would pretty much expect it up front (the $30k).

Hth.

It's called O&C (offer and compromise), best to have a tax attorney by your side when going through this process, however.

 

[confettiflyer]

Don't think of your situation now, but 25 years after you graduate when you are about age 50. They will look at all your assets including your house and 401(k). Do you really want to be 50 y/o and have only $100k in assets?

401k's are typically exempt...if your state has a homestead clause (like FL), that also cannot be seized.

 

[pezdispenser]

401k's are typically exempt...if your state has a homestead clause (like FL), that also cannot be seized.

Yes, cannot be seized, but their value will still be used to determine how much you are insolvent, and how much canceled debt will be excluded from your income. See IRS Publication 4681, Insolvency Worksheet http://www.irs.gov/publications/p4681/index.html In fact, you will see that they include a lot more such as furniture, clothing, books, guns...

 

[confettiflyer]

Yes, cannot be seized, but their value will still be used to determine how much you are insolvent, and how much canceled debt will be excluded from your income. See IRS Publication 4681, Insolvency Worksheet http://www.irs.gov/publications/p4681/index.html In fact, you will see that they include a lot more such as furniture, clothing, books, guns...

That is true...someone on here had an idea about selling off all of their assets prior to this planned insolvency and doing so a few years before so as not to fall into the typical lookback period that would arouse suspicion.

It's like running up your credit cards prior to a BK filing.....except maybe a few years in advance.

 

[BMBiology]

How do you plan for this? Who knows what is going to happen 25 years from now?

In the 70s, some doctors and lawyers declared bankruptcy to avoid paying their student loans. Congress then changed the law and made it virtually impossible to discharge student loans.

http://www.nytimes.com/2012/09/01/b...s-in-bankruptcy-is-an-uphill-battle.html?_r=0

"Before the mid-1970s, debtors were able to get rid of student loans in bankruptcy court just as they could credit card debt or auto loans. But after scattered reports of new doctors and lawyers filing for bankruptcy and wiping away their student debt, resentful members of Congress changed the law in 1976.

In an effort to protect the taxpayer money that is on the line every time a student or parent signs for a new federal loan, Congress toughened the law again in 1990 and again in 1998. In 2005, for-profit companies that lend money to students persuaded Congress to extend the same rules to their private loans."

 

[type b pharmD]

That is true...someone on here had an idea about selling off all of their assets prior to this planned insolvency and doing so a few years before so as not to fall into the typical lookback period that would arouse suspicion.

It's like running up your credit cards prior to a BK filing.....except maybe a few years in advance.

or maybe someone else holds your real estate and car for a period and you "rent" from them. Preferably someone you trust obviously.