Even when the outstanding debt is forgiven, the IRS will consider it taxable income and he'll have to pay taxes on the amount. Given that he's only making minimum payments, he's likely experiencing negative amortization - so the debt is growing. Let's be conservative and say after 20 years the debt will have grown to $200k. That's $200k in taxable income - what's known as the "tax bomb." Granted, it's not particularly difficult to cut a deal with the IRS...but usually that means a payment plan, not a reduction in the tax obligation. Of course, insolvency might get you out of at least part of the "tax bomb" ... but who wants to be insolvent at age 45 or 50?

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Posted by TheOcean

#honeyfriedchicken

Member since Aug 2004

45900 posts

Posted on 9/20/16 at 12:35 pm to Monsieur le Duc

I use to be one of the rah rah pay back your debts types until I graduated with just over six figures of debt. This is after getting a full ride to law school and 75% tuition at a state college. Schools are insanely expensive and the cost of living isn't cheap.

I saw something on reddit the other day that said if milk rose at a similar price to tuition, milk would be over $10/gallon. It's easy for older generations to talk about personal responsibility and paying back debts when tuition was a fifth of what it is now. Most advanced degrees from even state schools will set you back six figs+. That's not even factoring in undergrad tuition.

We have a huge problem on our hands because most millennials are graduating with debt. If we keep pushing personal responsibility instead of dealing with the insane costs of tuition and figuring out ways to decrease current student loan debt, we're going to be dealing with some serious economic issues in the future.

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Posted by Monsieur le Duc

Château de Chantilly

Member since Aug 2014

709 posts

Posted on 9/20/16 at 12:40 pm to TheOcean

quote:
TheOcean

We're in identical circumstances. I'm taking advantage of the REPAYE interest subsidy, but making aggressive "extra" payments on my debt. I'll probably still take 25 years to pay everything off - because speaking only for myself, being debt free isn't worth eating ramen for 10 years - but knowing that I won't be staring down the barrel of a huge tax debt is comforting.

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Posted by TheOcean

#honeyfriedchicken

Member since Aug 2004

45900 posts

Posted on 9/20/16 at 1:02 pm to Monsieur le Duc

And I'm still working on finding a job after two advanced degrees and a competitive resume.

I can't believe that a decade+ ago you could graduate and get hired immediately. Every single job I'm applying for asks for 2-5 years of experience.

I'll have to check out the REPAYE interest subsidy. Didn't even know that existed. It just sucks that this will be pushing back when I start a family, when I buy a house, and the amount of disposable/investment income I have for quite a while. My earning potential improved a lot, but something needs to be done about the insane tuition amounts/student debt.

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Posted by Monsieur le Duc

Château de Chantilly

Member since Aug 2014

709 posts

Posted on 9/20/16 at 2:18 pm to TheOcean

quote:
I'll have to check out the REPAYE interest subsidy. Didn't even know that existed.

Yep, whenever your REPAYE "minimum payments" are insufficient to get you out of negative amortization, the Fed will pay 100% of all remaining interest on subsidized loans for the first 3 years, and 50% of all remaining interest thereafter. For unsubsidized loans, it's 50% of all remaining interest throughout.

It can add up to a pretty substantial amount if you've got a large debt load and aren't making much (thus your minimum payments are still small).

ETA: and the best thing is that you don't have to ACTUALLY experience negative amortization...I can make "extra" payments on loans, knock out the interest that's left over after my "minimum payment," and still receive the subsidy.

This post was edited on 9/20/16 at 2:19 pm

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Posted by ATL-TIGER-732

ATL

Member since Jun 2013

2291 posts

Posted on 9/20/16 at 8:55 pm to TexasTiger89

quote:
Incorrect for Federal Loans

The original discussion was about private loans and death. That is why Federal loans are the only way to go according to Clark Howard.

quote:
There are also other ways it is forgiven or discharged.

The link you provided specifically mentions Federal loans only.

You have to work at low paying teacher/public service jobs to qualify for loan forgiveness instead of getting a better paying job. So, basically, you are paying the full loan by not earning to your full potential for up to 10 years.

Then, at the end of the 5/10 years, your salary history reads very low and no one will offer you a large salary increase just because your student loans are now paid off.

P.S.
Private Student Loan Forgiveness Is a Myth, but Try These Tips