I don't think you're fully comprehending the tax liability aspect. You're only liable for taxes to the extent you're not insolvent. Because this is commonly overstated:
For debt forgiven under the 10-year IBR program (PSLF), there is no tax consequence.
For debt forgiven under the longer program, the tax is calculated as follows:
You're only taxed on forgiven debt to the extent that it exceeds insolvency. (Total of liabilities minus FMV of assets.) Also, the capitalized interest is not taxable to the extent it would be deductible if you paid it.
http://www.irs.gov/pub/irs-pdf/p4681.pdf
So, $200K in principal on loan, $50K in assets, $500K forgiven (principal and interest)...you'd be taxed on $50K.
I actually discussed exactly this in the post that you quoted. I'm well aware that you are only liable for the amount that your assets exceed your forgiven debt.
But we are on an early retirement/financial independence forum and responding to a couple with potential for very high earnings. If they aren't paying off their loans, then they are going to have a high savings rate. And if they have a high savings rate, their assets will crush their liabilities after year 20 (it's not even close). And, because of this, they will be responsible for the full tax liability.
Also, once you're on IBR, you can't be kicked off, even if you make way more than the standard payment would be and are no longer in financial hardship.
I'm aware of this, also. My point was that if you have a high student loan balance and simply make minimum payments, then your balance is going to grow and grow and grow due to interest. And although your payment will technically never go over the ten year payment, your balance will be huge and thus require you to either (a) make a higher payment than the ten year payment or (b) pay the ten year payment until the loan is paid off--and both of these will result in you paying more towards your loan and receiving no forgiveness.
Also, why would you turn down a job to make more money? If I make $10k more per year, my payments will go up by maybe $1000 per year, at most. That's still $9k more. I don't understand the incentive to not make more money under IBR.
I guess you wouldn't turn down this job, but my point is two fold. First, if you initially make minimum payments, you may receive raises and eventually have to pay a bigger loan balance back anyway.
Second, and more importantly, you'd be way better off getting your loans in order and then using money from raises and promotions to crush your debt ASAP. That is, in my mind, the most motivating factor of getting your loans under control as soon as you graduate--once your career takes off, you'll be able to crush them and get them out of the way quickly if you start aggressively.
Also, why are you and your wife filing separately if you both have student loans?
I'm not married.
Also, they're changing the rules on PAYE and IBR so that filing separately doesn't count anymore. So you're not really losing out on the interest deductions.
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I'm not 100% certain, but I believe they are only changing the rules as applied to new enrollees in IBR/PAYE. My IBR contract allows me to file separately.
That said, the fact that the rules change should scare you. I've been reading on student loans for some time now and the rules have changed significantly three times. Any plan you make is subject to the whims of Congress (rather than yourself).
Also, you're saying that you'd end up paying the same amount back in student loans/taxes than you'd pay if you paid it off early. Ok......so why pay it off early? If you're going to pay the same amount back anyways, then you're basically missing out on 8 years of retirement growth.
I'm not at all saying they'd pay back the same amount. In my example, doing the minimum payment/PAYE plan for 20 years would result in $313,000 towards my loans. Paying them back in eight years costs $182,000.
In fact, a large portion of my post shows that under most circumstances, the borrower will pay significantly more by stretching out his or her loans.
Furthermore, let's say 7 years down the road, something happens to where you can't work anymore. At least you'd have 7 years of retirement money saved up. If you're only paying off the debt, you're sitting there looking at your retirement account at low levels while wondering what you're going to do for money. If you've got retirement savings, then at least you've got that.
I never advocated for 100% debt payoff aggressiveness. There's a balance to be struck.
Also, not sure whether I posted it here, but I'm enrolled in IBR and targeting my high interest rate loans. So if shit does hit the fan, yes, I'm out the money I paid towards my loans...but I'd also still be eligible for $0 payments until everything was forgiven.
I guess I'll end with this: you seem to have the exact mindset I had back in January and February. I was making minimum payments, stuffing my Roth with money, and pretending like my student loans didn't exist.
Then I realized my balance was growing by $575 per month. That's almost $7000 per year. And if--like I hope--I receive a big promotion after 2-3 years in practice (the most common time to lateral), then I'd have to tackle $21,000 in interest before even making a dent in my loans.
And that's just not for me. I can chip about $13,000 away at these loans each year for now. Then when I make six figures (hopefully), I can crush my loans in no time. Then I can use the money that I was paying towards my loans and put it towards retirement. And then I will be very, very close to FI.
I'll be damned if that doesn't sound better than doing accounting gymnastics with IBR for TWENTY years.